IND AS 116 – LEASES

EMBARKING ON A NEW PATH FOR LEASE ACCOUNTING

BDO in India
 BDO in India | IND AS 116 – Leases

OVERVIEW
Lessee accounting will undergo a profound transformation
with the applicability of the new standard on leases, Ind AS
116- Leases. On 30 March 2019, the Ministry of Corporate
Affairs notified Ind AS 116. The standard is effective for
annual periods beginning on or after 1 April 2019. Ind AS 116,
which substantially converges with IFRS 16 on leases, requires
lessees to recognise all leases on the balance sheet, with a
few exemptions.

KEY FEATURES OF THE IND AS 116

LESSEE ACCOUNTING
▪ Single lease accounting model under which all leases be
recognised on Balance Sheet
▪ Optional practical expedient available for short-term
leases and leases of low-value assets
▪ Right of Use (‘RoU’) asset and lease liability recognised

LESSOR ACCOUNTING
▪ Substantially unchanged from Ind AS 17
▪ Dual lease accounting model-finance and operating leases
▪ Lease classification criteria – similar to those in Ind AS 17

GENERAL
▪ Detailed guidance on contract combination and contract
modification (aligned to Ind AS 115 in principle)
▪ Extensive disclosure requirements

SIGNIFICANT IMPACT AREAS

BUSINESS & ACCOUNTING IMPACTS
▪ Impacts on key performance indicators (EBITDA, PBT,
current ratio etc)
▪ Impacts on bank covenants
▪ Determination of inputs for calculation of RoU asset and
lease liability
▪ Identifying leases & evaluating lease classification
▪ Extensive disclosure requirements

OPERATIONAL AND PROCESS IMPACTS

▪ Review of existing processes to evaluate adequacy
▪ Collation of data required to meet disclosure requirements
▪ Upgradation of IT systems
▪ Requirement of staff trainings
 BDO in India | IND AS 116 – Leases

HOW BDO IN INDIA CAN ASSIST

IND AS 116 IMPLEMENTATION SUPPORT
Implementation of Ind AS 116 is proving to be a major challenge for companies having substantial number of leases, currently
being accounted as operating leases. At BDO India, we help in meeting this challenge effectively. Our team of Ind AS experts
provide support in simplifying this complex task in a number of ways:

▪ Performing diagnostic study and impact analysis to ascertain gaps between Ind AS 17 and Ind AS 116
▪ Determination of suitable transition approach (full retrospective v/s modified retrospective)
▪ Assistance in various evaluations under Ind AS 116
- Identification and classification of leases
- Applicability of practical expedients
- Determination of inputs for RoU asset and lease liability calculation
▪ Providing customised trainings on Ind AS 116

LEASE ACCOUNTING TOOL (LAT)

Lease Accounting tool (LAT) is a web
application with local installation that has
the capability of operating on a virtual
server or local hardware (server). LAT has
been designed in line with BDO LEAD
originally developed by BDO Germany and
has been implemented by well known
organisations in Germany.

Features & functionalities of LAT

Multipurpose Tool Helps in GAAP compliance Ease of use

▪ Supports both lessee & lessor
accounting
▪ Supports IFRS/ Ind AS & US
GAAP
▪ Can be used for multiple
entities, business units &
currencies
▪ Incorporates various scenarios & inputs
such as transfer of ownership, purchase/
extension/ termination options, rent
escalations, initial direct costs, expected
restoration costs, lease incentives
received etc.
▪ Availability of detailed reports
▪ Integrates with SAP (possible
for other ERPs also on
customisation)
▪ Comes with a comprehensive
user manual
▪ Accounting entries can be
generated from the reports

Benefits of using Lease Accounting Tool

▪ With substantial reduction in manual efforts, the staff is able to focus more on judgmental areas of
Efficiency Ind AS 116 implementation
▪ Helps in efficient and timely implementation of Ind AS 116

Ongoing lease ▪ Useful for both transition to Ind AS 116 and post- transition lease accounting
accounting

Expertise ▪ Created by BDO India Accounting Advisory experts to ensure compliance with applicable GAAP
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