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General Query

Financial Reporting

Will rent be considered as lease? Eg: There is a hotel and they have taken ground floor on rent , the asset is identified the period is not fixed as it can be for longer period also, will it be considered as lease. If yes, the won't everything will be on lease. If such is the case, everybody's books of accounts shall have lease liability. Video Details ------------- Ind AS - CA Final Ind AS 116 Leases #22. Lease Vs. Supply


Hrishikesh Pradhan

Hrishikesh Pradhan

CA Final

3K+

07-Oct-24 22:04

214

Answers (8)

I guess this will be operating lease. And there's no concept of lease liability in operational lease as asset still remains in the books of lessor and he also claims depreciation.


Muskan Achhava

Muskan Achhava

CA Final

10

07-Oct-24 22:57

Muskan Achhava

I guess this will be operating lease. And there's no concept of lease liability in operational lease as asset still remains in the books of lessor and he also claims depreciation.

But as per IND AS 116, we don't bifurcate finance and operational lease , right? So, everything is taken to balance sheet


Thread Starter

Hrishikesh Pradhan

Hrishikesh Pradhan

CA Final

3K+

08-Oct-24 07:28

Thread Starter

Hrishikesh Pradhan

But as per IND AS 116, we don't bifurcate finance and operational lease , right? So, everything is taken to balance sheet

No. We do bifurcate both types and account for accordingly. Hope this note I've attached helps you differentiate.

Attachments

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Muskan Achhava

Muskan Achhava

CA Final

10

08-Oct-24 08:36

Hi If the rent period is more than 12 months it will be considered as lease, For tenant finance and operating same right,


R Yashwanth Kumar

R Yashwanth Kumar

CA Final

86K+

08-Oct-24 11:30

R Yashwanth Kumar

Hi If the rent period is more than 12 months it will be considered as lease, For tenant finance and operating same right,

No. If renting period covers major part of asset's life, then it will be finace lease. Also, yes, if it's >12 months, then there will be lease liability and ROU asset. But I believe rental agreements are done for 11 months and then they are renewed, whereas lease agreements are done for longer period. So may be that's why entities pass journal entry for rent and not lease.


Muskan Achhava

Muskan Achhava

CA Final

10

08-Oct-24 11:58

As explained in the video, Lease would arise if there is an identified asset. Also the lessor should not have substantive right of substitution. THe tenure of lease is defined in the contract. For calculation of ROU asset and lease liability, we only consider the non-cancellable period. So for most of rental cases, you do not have long non-cancellable periods. For e.g if you take a house on rent, you will have only 1 month notice period. Once it is a short term lease, you have the option to not recognise ROU asset or liability.


CA Suraj Lakhotia

CA Suraj Lakhotia

Admin

09-Oct-24 11:15

Muskan Achhava

No. We do bifurcate both types and account for accordingly. Hope this note I've attached helps you differentiate.

For lessee, there is no distinction in accounting for operating or finance lease.


CA Suraj Lakhotia

CA Suraj Lakhotia

Admin

09-Oct-24 11:15

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