Lease Accounting as per IFRS 16 vs. AS 19

Lease Accounting as per IFRS 16 vs. AS 19

Sl. No.TopicInd AS 116AS 19
1Applicability to land & buildingSpecific provisions dealing with leases of land and building exists in Ind AS 116Not applicable to lease of lands
2Residual ValueNo definition of “Residual Value”The term “Residual Value” is defined
3Inception & commencement of leaseInception of lease and commencement of lease are different as per Ind AS 116Both the terms are used at some places in AS 19, and these terms are not defined and distinguished
4Recognition dateLease recognised as finance leases as assets and liabilities in balance sheet at the commencement of the lease termRecognition is at the inception of the lease
5Lease paymentsLease payments made during the period between inception of the lease and the commencement of the lease term is adjustedNo such adjustments as per AS 19
6Measurement principlesMeasurement aspects of investment properties (Ind AS 40) and biological assets (Ind AS 41) are dealt with separately. If such assets are provided or held under a lease agreement, then the measurement principles as per Ind AS 116 will not applyAS 19 does not contain such provisions
7Lease evaluationProvides guidance on accounting for incentives in the case of operating leases, and evaluating the substance of transactions having the legal form of a lease and determining whether such an arrangement contains an element of leaseDoes not contain such guidance
Sl. No.TopicInd AS 116AS 19
8Upward revision of unguaranteed residual valueUpward revision of unguaranteed residual value, during the term of the lease is permitted by the standardAS 19 prohibits upward revision of unguaranteed residual value, during the term of the lease
9Treatment of excess of sale proceeds over the carrying value of the asset in sale and leaseback transactionThe seller-lessee should measure the right-of-use asset arising from the leaseback based on the previous carrying amount. Any gain or loss relating to the rights transferred to the buyer-lessor should be recognised in the profit and loss accountIn case of a sale and leaseback transaction (in case of finance lease), the excess of sale proceeds, over the carrying amount of the asset, to be deferred and amortised by the seller(lessee) over the tenure of lease, in proportion to depreciation of the leased asset.
10Classification of lease liabilitiesLease liabilities are classified as current/non-current. It also makes reference to Ind AS 105 on “Non-current Assets Held for Sale and Discontinued Operations“These matters are not addressed in AS 19
11Expected inflationary costsFor operating lease, if escalation of lease rentals is attributable to the expected general inflation to compensate the lessor for expected inflationary costs, such costs shall not be straight linedAS 19 does not provide for the same
12Treatment of initial direct costs by lessorInitial direct costs, incurred by the lessor in case of operating lease, should be included in the carrying amount of leased asset and amortised as an expense, over the lease periodInitial direct costs, incurred by the lessor in case of operating lease, should be either charged off, at the time of incurrence or should be amortised over the lease period
13DisclosuresDisclosures are more as compare to AS 19Fewer disclosures as compared to Ind AS 116

Lease Accounting Software Pricing

Consulting 1

Statement on Auditing Standards-SA 265

The scope and objective of the auditing standards related to the auditor’s responsibility to communicate deficiencies in internal control to those charged with governance and management. The SA 265 applies when the auditor identifies deficiencies in internal control during the audit of financial statements. The auditor is required to obtain an understanding of internal control relevant to the audit when identifying and assessing the risks of material misstatement. However, the auditor is not required to express an opinion on the effectiveness of internal control.
Read More
Money 3

What is the difference between operating lease and finance lease?

An operating lease is a short-term lease in which the lessor (the owner of the asset) rents the asset to the lessee (the user of the asset) for a specific period of time, usually less than the useful life of the asset. At the end of the lease term, the lessee returns the asset to the lessor.
Read More
Contract 8

Ind AS Accounting Standards

Ind AS (Indian Accounting Standards) are a set of accounting standards developed by the Institute of Chartered Accountants of India (ICAI) and adopted by companies in India for preparing their financial statements. These standards are based on the principles of International Financial Reporting Standards (IFRS) and are intended to improve the comparability and consistency of financial reporting in India. They are applicable to companies that are listed on a stock exchange in India or have a net worth of more than INR 250 crore.
Read More
Laptop 1

Lease accounting, lease period extended after year 1 – Journal entries

Lease accounting, lease period extended after year 1 – Journal entries Details for lease accounting for lease extension Let us assume the following details for lease accounting: Lease start date: 1-Apr-2019 Lease end date: 31-Mar-2024 Lease payments: Rs. 2,75,000 Payment frequency: Annual – payable at the end Incremental borrowing rate: 9% Lease extension on 1-4-2020: Lease Modification effective date: 1-Apr-2020 Lease end date extended up to: 31-Mar-2026 All other terms remain the same When the lease is modified without any increase in the scope of the lease then lease liability and the right-of-use are recomputed on the effective date of…

Read More
Pencil set 1

Lease accounting, interest-free deposit lease period extended after year 1

Lease accounting, interest-free deposit lease period extended after year 1 Details for lease accounting for lease extension When the lease is modified without any increase in the scope of the lease then lease liability and the right-of-use are recomputed on the effective date of such modification. This would result in amortising an additional amount and the finance charges based on the revised lease liability should be recomputed. Let us assume the following details for lease accounting: Lease start date: 1-Apr-2019 Lease end date: 31-Mar-2024 Lease payments: Rs. 2,75,000 Lease Deposit: Rs. 3,00,000 Payment frequency: Annual – payable at the end…

Read More
Office space

Lease accounting Journal Entries for Modification

Lease accounting Journal entries for Modification Details for lease accounting with modification When the lease is modified without any increase in the scope of the lease then lease liability and the right-of-use are recomputed on the effective date of such modification. This would result in amortising an additional amount and the finance charges based on the revised lease liability should be recomputed. Let us assume the following details for lease accounting: Lease start date: 1-Apr-2019 Lease end date: 31-Mar-2024 Lease payments: Rs. 2,75,000 Lease Deposit: Rs. 3,00,000 Payment frequency: Annual – payable at the end Incremental borrowing rate: 9% Lease…

Read More
Interest rate 1

Lease accounting with an interest-free deposit

Lease accounting with an interest-free deposit Details for lease accounting Let us assume the following details for lease accounting: Lease start date: 1-Apr-2019 Lease end date: 31-Mar-2024 Lease payments: Rs. 2,75,000 Lease Deposit: Rs. 3,00,000 Payment frequency: Annual – payable at the end Incremental borrowing rate: 9% Right-of-use Recognition of Lease liability Amortisation of Right-of-use Finance cost Interest free deposit Imputed interest income Amortisation of Right-of-use Trial balance Profit and Loss Account Balance Sheet Lease Accounting Software Pricing

Read More
Investment analysis

Journal entries for lease accounting

Journal entries for lease accounting Details for lease accounting Let us assume the following details for lease accounting: Lease start date: 1-Apr-2019 Lease end date: 31-Mar-2024 Lease payments: Rs. 2,75,000 Payment frequency: Annual – payable at the end Incremental borrowing rate: 9%  Right-of-use  Recognition of Lease liability Amortisation of Right-of-use Finance cost Trial balance Profit & Loss Account Balance Sheet

Read More
Steps 1

Steps in lease accounting

Steps in lease accounting Details for lease accounting Let us assume the following details for lease accounting as per Ind AS 116 Lease start date: 1-Apr-2019 Lease end date: 31-Mar-2024 Lease payments: Rs. 2,75,000 Payment frequency: Annual – payable at the end Incremental borrowing rate: 9% Step 1: Calculate the right-of-use The right-of-use is first calculated as follows: Step 2: Prepare amortisation schedule The amortisation schedule based on straight line method is calculated as follows: Step 3: Calculate Lease Liability The lease liability is computed as follows: Step 4: Calculate the finance charges The finance charges for the lease liability…

Read More
Education 1

Operating lease vs financing lease

Operating lease vs financing lease Classification of Lease Leases are classified as either finance lease or operating lease. A finance lease is like buying an asset with the finance provided by an external party. It allows a lessee to own an asset with the help of finance from the lessor. The lessee has the option to be the permanent owner of the asset at the end of the lease term, subject to certain terms. An operating lease is like an asset rental. It allows the lessee to use the leased asset for a specific period of time. The specified period…

Read More
Scroll to Top