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Overview of IndAS 116

 

Author : CA Jyoti

Overview of Ind AS-116

  • The Ministry of Corporate Affairs (MCA) notified Ind AS 116, the new leases accounting standard on 30th March 2019 with the effective date of its application from 1st April 2019. Ind AS -116 replaces the current guidance in Ind AS-17, ‘Leases’.
  • Ind AS 116 defines a lease as a contract, or part of a contract , that conveys the right to use an asset (the underlying asset) for a period of time in exchange for.
  • Under Ind AS 116 lessees have to recognize a lease liability reflecting future lease payments and a ‘right-of-use asset’ for almost all lease contracts. This is a significant change compared to Ind AS 17, under which lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). Ind AS 116 gives lessees optional exemptions for certain short-term leases and leases of low-value assets.
  • The accounting by lessors will not significantly change. As under Ind AS 17, the lessor will continue to classify leases as either finance or operating, depending on whether substantially all of the risks and rewards incidental to ownership of the underlying asset have been transferred.
  • On transition, lessees can choose between full retrospective application or a simplified approach that includes certain reliefs and does not require a restatement of comparatives. In addition, as a practical expedient entities are not required to reassess whether a contract is, or contains, a lease at the date of initial application (that is, such contracts are ‘grandfathered’).
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