By Ankit Bhalotia, (firstname.lastname@example.org)
Accounting for lease has been a concern for the leasing industry from very beginning of the industry. Over the years, the leasing industry has grown under the shadow of the accounting standards. There has been a revolutionary change taking place in the leasing standards which forms a basis for their records in the books of the parties.
The entire accounting of lease transactions lays it foundation with Accounting Standard 19, operative since a decade now. In alignment with the prevalent IAS 17, the IFRS Foundation and the International Accounting Standards Board (IASB) made a successful attempt to introduce the IND AS 17. However, soon IASB and US Financial Accounting Standards Board (FASB) created a hallmark by bringing out IFRS 16, replacing the 50 year old standard.
The Accounting Board of ICAI, in conformity with the released IFRS for Indian accounting framework, has taken a step forward in this direction with the release of the exposure draft  on IND AS 116 – Leases.
The following table would highlight the major differences and carve outs between AS-19, IND-AS 17 and IND-AS 116:
|Sl. No||Particular||AS-19||IND-AS 17||IND AS 116|
|1||Scope & coverage||· The scope of standard specifically excludes lease agreement to use land.
· No specific provisions relating to sub-lease.
· No provision relating to measurement of property
|· Land is covered by the following standard.
· No specific provisions relating to sub-lease.
· The standard is not applicable as the basis of measurement for property held by lessees/provided by lessors under operating leases but treated as investment property and biological assets held by lessees as finance lease/provided by lessors under operating dealt with in the Standard on agriculture.
|· Land is covered by the following standard
· The standard covers specific provisions relating to the right to use assets in a sub-lease as well.
· Similar to IND-AS 17 but provision related to investment property provided by lessors under operating leases is removed.
|2||Definition of lease||A lease is an agreement whereby the lessor conveys to the lessee
in return for a payment or series of payments the right to use an asset for an agreed period of time. No specific guidance to determine such arrangement given.
|Same as AS-19 but specific guidance in determining whether an arrangement contains lease is given in Appendix C of the standard.||A lease is the contract that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Specific guidance relating to assessment of contract is provided in the standard.|
|3||Definition of residual value||Para 3.11 defines residual value as estimated fair value of the asset at the end of the lease term||Not defined in standard||Not defined in standard|
|4||Sale & Leaseback Transactions of Finance Lease||Para 48 of the standard states with Profit/Loss arising from such transactions must be deferred and
amortized over the lease term in proportion to the depreciation of the
|Para 55 states that the gains/loss should be deferred and amortized over the lease term. The ratio is not defined.||It states that the gains/loss should be deferred and amortized over the lease term. The ratio is not defined.|
|5||Operating Lease rentals and inflation||The standard is silent on its treatment||In reference to Para 33(b) of the standard, straight line method should not be used when the rentals are increased based on inflations||The standard is silent of its treatment|
|6||Treatment of Initial Direct Cost – Operating Leases||Para 42 states that the lessor has an option to either defer the booking of cost and allocate to income over the lease term in proportion to the recognition of rent income, or are recognised as an expense in the statement of profit and loss in the period in which they are incurred.||Para 52 states that Initial direct costs incurred by lessors in negotiating and arranging an
operating lease shall be added to the carrying amount of the leased asset and
recognised as an expense over the lease term on the same basis as the lease income.
|Same as IND-AS 17.|
|7||Treatment of Initial Direct Cost – Finance Leases||Para 31 mentions that the initial direct costs are either recognized immediately in the statement of profit and loss or allocated against the finance income over the lease term.||Para 38 mentions that initial direct costs are included in the initial measurement of the finance lease receivable and reducing the amount of income recognised over the lease term. The interest rate implicit in the lease is defined in such a way that the initial direct costs are included automatically in the finance lease receivable; there is no need to add them separately.||Para 69 mentions that it is included in the initial measurement of the net investment in the lease and reduce the amount of income recognised over the lease term. The interest rate implicit in the lease is defined in such a way that the initial direct costs are included automatically in the net investment in the lease; there is no need to add them separately.|
|8||Lease Incentives||No specific discussion of lease incentives.||The lessor and lessee shall recognise the aggregate cost of incentives as a reduction of rental income over the lease term.||The incentives are recorded as deduction from rentals.|
|9||Classification of Lease in hands of lessee||Leases were recorded as per their classification into Operating and Finance Lease||Leases were recorded as per their classification into Operating and Finance Lease||Lessee will follow Single Lease Accounting. There is no classification as operating or finance Lease for lessee.|
|10||Accounting and Presentation in financial Statement by lessee by lessee||Under Operating lease, asset was not recorded in books and recognized lease payments as expense in the profit and loss account.||Under Operating lease, assets was not recorded in books and recognized lease payments as expense in the profit and loss account||Lessee will recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.
Lessee would recognize depreciation expense on the right of use asset and interest expense on the lease liability, classify the lease payments into principal and interest component.
|11||Lease modification||No treatment mentioned in the standard.||No treatment mentioned in the standard.||Para 44 and Para 79 specifically deal with lease modification and its accounting.|
|12||Disclosures Requirements of lessor||Exemption granted to small and medium sized companies for certain disclosures.||Exemption removed.||Additional Requirements of disclosure for lessor such as disclosure of maturity analysis of lease payments; quantitative and qualitative explanation of significant changes in carrying amount of new investment in finance lease.|
|13||Disclosures Requirements of lessee||NA||NA||Additional requirements as disclosure of maturity analysis of lease payments; quantitative and qualitative explanation of significant changes in carrying amount of new investment in finance leases.|