IND AS 116 Leases

IND AS 116 Overview

 Ind AS 116 sets out the principles for the recognition, measurement, presentation,
and disclosure of leases.

 The objective is to ensure that lessees and lessors provide relevant information in a
manner that faithfully represents those transactions.

 Ind AS 116 will replace current Ind AS 17 Leases, from its proposed effective date 1
April 2019.

An entity shall apply this Standard consistently to contracts with similar
characteristics and in similar circumstances.
Definitions of a Lease

• Identified asset.
• Lessee obtains substantially all of the
economic benefits.
• Lessee directs the use.
If all the above conditions are fulfilled the
Contract will classify as lease.
 Scope of IND AS 116

Exclusions Lease Arrangements Financial Reporting Lease Contracts

Understanding the Defining the types of The standard impacts how IND AS 116 applies to all
specific exclusions lease agreements lease transactions are lease contracts, including
and exceptions from covered under IND reported in financial
statements, affecting the real estate, equipment,
the scope of IND AS AS 116. and other assets, with
balance sheet and income
116. statement. some exceptions
Recognition and Measurement
Initial Recognition
Lessees are required to recognize lease
liabilities and right-of-use assets on the
balance sheet, impacting financial ratios and
performance indicators.

Subsequent Measurement
The accounting treatment of leases involves measuring
lease liabilities and right-of-use assets, impacting
future lease payment obligations and asset values.

Depreciation and Interest

Lease assets are depreciated over the lease
term, and interest expense is recognized on
the lease liability, affecting income statement
and cash flows.
Lessee Accounting

Balance Sheet Impact Income Statement

Lessees must recognize right-of-use assets and lease Lease expenses are recognized as depreciation of
liabilities, resulting in changes to the balance sheet the right-of-use asset and interest on the lease
and key financial metrics. liability, impacting operating performance.

Disclosure Requirements
The standard sets out specific requirements for
lessees to disclose information about their leases in
the financial statements and related notes.
Lessor Accounting
Lease Income
Lessors recognize lease income over the lease
term, reflecting the transfer of the underlying
asset and the passage of time.

Impact on Financials
The standard affects lessors' profit recognition,
classification of leases, and presentation of
financial information in the income statement.

Asset Management
Lessor accounting involves assessing and
managing the credit risk associated with
leases, as well as allocating profits and costs
from lease contracts.
Operating leases
Off-Balance-Sheet Treatment Limited Duration
Operating leases do not result in the recognition of an Operating leases often cover a shorter period than the
asset or a liability on the lessee's balance sheet. economic life of the leased asset.

Operating Lease Costs

Lease payments are recognized as expenses on a
straight-line basis over the lease term.

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Financing Leases
Ownership Transfer
Financing leases typically result in the transfer of
ownership to the lessee by the end of the lease term.

Substantial Risks and Rewards

Finance leases transfer most of the risks and
rewards associated with ownership to the lessee.

Interest Expense
The interest expense associated with financing
leases is front-loaded, reflecting a higher cost early
in the lease term.
Impact on Financial Statements
Income Statement
Lease accounting directly impacts the income
statement, including operating expenses, depreciation,
and interest expenses.
Balance Sheet
Recognition of lease liabilities and right-of-use assets
significantly impacts the balance sheet structure and
financial position.

Cash Flow Statement

Lease payments and cash flows from financing
activities are affected and should be accurately
presented in the statement of cash flows.

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Challenges and Practical Issues
Data Management
Managing lease data and extracting information for
accounting under the new standard poses
challenges related to data accuracy and
completeness.

Complex Contracts
Dealing with complex lease contracts and the
interpretation of lease terms can create practical
challenges in applying the standard's requirements.

Practical Expedients
The standard provides practical expedients for certain
aspects of lease accounting, but deciding when and
how to apply them requires careful consideration.
Presentation and Disclosure
Financial Statements
Lease accounting requirements demand specific
presentation methods in financial statements to reflect
lease transactions accurately.

Notes to the Financial Statements

Disclosure notes provide additional insights into lease-
related commitments, facilitating a comprehensive
understanding.

Lease Commitments
Disclosure of future lease payments and other lease-
related commitments in the financial statements is
crucial for transparency.

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THANK YOU