Brief about Indas 116: Ind AS 116 sets out the principles for the recognition, measurement, presentation and disclosure of leases and faithful representation of the transactions by lessees and lessors. This information gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of an entity.
The standard applies to all leases, including leases of right-of-use assets in a sublease, except for:
(a) Leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources;
(b) Leases of biological assets within the scope of Ind AS 41, Agriculture held by a lessee;
(c) Service concession arrangements within the scope of Appendix D, Service Concession Arrangements of Ind AS 115, Revenue from Contracts with Customer;
(d) Licenses of intellectual property granted by a lessor within the scope of Ind AS 115, Revenue from Contracts with Customers; and
(e) 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.
In this topic, We are going to explain some key differences between AS-19 & Ind AS 116: –
| Particulars | IND AS 116 | AS 19 |
| Applicability to land & building | Specific provisions dealing with leases of land and building exists in Ind AS 116 | Not applicable to lease of lands |
| Residual Value | No definition of “Residual Value” | The term “Residual Value” is defined |
| Inception & commencement of lease | Inception of lease and commencement of lease are different as per Ind AS 116 | Both the terms are used at some places in AS 19, and these terms are not defined and distinguished |
| Recognition date | Lease recognised as finance leases as assets and liabilities in balance sheet at the commencement of the lease term | Recognition is at the inception of the lease |
| Lease payments | Lease payments made during the period between inception of the lease and the commencement of the lease term is adjusted | No such adjustments as per AS 19 |
| Measurement principles | Measurement 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 apply | AS 19 does not contain such provisions |
| Upward revision of unguaranteed residual value | Upward revision of unguaranteed residual value, during the term of the lease is permitted by the standard | AS 19 prohibits upward revision of unguaranteed residual value, during the term of the lease |
| Treatment of excess of sale proceeds over the carrying value of the asset in sale and leaseback transaction | The 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 account | In 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. |
| Classification of lease liabilities | Lease 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 |
| Expected inflationary costs | For 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 lined | AS 19 does not provide for the same |
| Treatment of initial direct costs by lessor | Initial 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 period | Initial 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 |
| Disclosures | Disclosures are more as compare to AS 19 | Fewer disclosures as compared to Ind AS 116 |