Objective & Scope of lease accounting standard

Objective

  • Sets out the principles for recognition, measurement, presentation and disclosure of leases
  • Objective is to ensure that lessees and lessors provide relevant information that faithfully represents those transactions
  • Enables users to assess the effect that leases have on the financial position, financial performance and cash flows of an entity
  • Consistently applied to contracts with similar characteristics and in similar circumstances

Scope

Ind AS 16 is applied to all leases, including leases of right-of-use assets in a sublease.

Out of scope:

  • leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources;
  • leases of biological assets within the scope of Ind AS 41, Agriculture
  • service concession arrangements as per Ind AS 115, Revenue from Contracts with Customer;
  • licences of intellectual property granted by a lessor within the scope of Ind AS 115, Revenue from Contracts with Customers
  • rights held by a lessee under licensing agreements within the scope of Ind AS 38, Intangible Assets, for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights.

Ind AS 116 may be applied for in respect of leases of intangible assets but not required to do so.

Portfolio application

  • Ind AS 116 requires the accounting for an individual lease
  • Applied to a portfolio of leases with similar characteristics if the effects on the financial statements would not differ materially from applying Ind AS 116 to the individual leases within that portfolio
  • If accounting for a portfolio, should use estimates and assumptions commensurate with the size and composition of the portfolio

Combination of contracts

  • Combine two or more contracts entered into at/near the same time with the same counterparty or related parties of the counterparty
  • Accounted for the contracts as a single contract if one or more of the following criteria are met:
  • the contracts are negotiated as a package with an overall commercial objective that cannot be understood without considering the contracts together
  • the amount of consideration to be paid in one contract depends on the price or performance of the other contract
  • the rights to use underlying assets conveyed in the contracts form a single lease component

Exemptions that can be availed in lease accounting

Exemptions that can be availed in lease accounting Exemptions A lessee can avail exemption in respect of the following items:short-term leasesleases for which the underlying asset is of low valueIf a lessee elects not to apply then the lessee should recognise the lease payments associated with those leases as an expense on either a straight-line basis over the lease term or another systematic basisThe lessee should apply another systematic basis if that basis is more representative of the pattern of the lessee’s benefit Short term lease If a lessee avails short-term leases exemption, the lessee should consider the lease to be a new …
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Lease Accounting Software – Data Input Process

Lease Accounting Software – Data Input Process Creation of Company Super Admin is the administrative contact from RVSBELL Analytics, who will create the company and the user login ids for all the users of the application. Creation of users Three users are created by the Super Admin viz., Accountant, Manager and Auditor. All the three login ids should be created before the user starts to work with the system. If the user wants more ‘Accountant’ logins, it can be requested at additional cost and the Super Admin will create the same. Before the user starts to upload the data etc., all the login ids created …
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Lease Accounting Software Computation Process

Lease Accounting Software Computation Process Generate cash flows Based on the start date, effective date, end date, frequency of the lease, payable at beginning or end etc, cash flows for the entire period is generated as follows: Change the following data – only start from 1-4-2019 onwards Variable cashflows If you upload lease with Cash flow as “YES” then click the export cash flow. If the Cash Flow field is not ‘YES’ then the ‘Upload Cash Flow’ and ‘Export Cash Flow’ buttons will not be active. The Status of the record for which Cash flows should be updated will be shown as ‘New’. A csv file …
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Lease Accounting Software – Deposit Management

Lease Accounting Software – Deposit Management Upload Lease Deposit Deposits with sample data Import ‘Lease advance’ file Click the import data and upload the advance.csv in the given format Deposits uploaded Compute the Lease Deposit Prepare the schedule of dates first. 1. Discount factor is based on the rate given in the Advances file by adding the two fields – Let us call the sum total of these two as ‘Rate for Deposit’ 2. For the first line, where the advance amount is given the discount factor is found by the number of days from the start date to the end date in the formula: 3. For the subsequent lines, the …
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Lease Accounting Software Modification and Termination

Lease Accounting Software Modification and Termination 1. Processing is done on a quarterly basis. 2. Journal entries are passed on a monthly basis always. All entries will be dated the end of each month. Exception is the payment of lease rental and other payments which will be the actual date of such payment. 3. There may be some modifications in the lease term when we receive the data for the next quarter. 4. So every time we process the data, the first job is to check the following: New leasesExisting leases with no modificationExisting leases with modifications For a. New leases, the entire process mentioned in …
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