Ind –As 17

Leases
 Scope

However, this standard shall not be applied as the basis of measurement for:
a)Property held by lessees that is accounted for as investment property (Ind AS
40, Investment property)
b)Investment property provided by lessor under operating leases (Ind AS 40,
Investment property)
c)Biological assets held by lessees under finance lease (Ind AS 41 Agriculture)
d)Biological asset provided by lessor under operating leases (Ind AS 41 -
Agriculture)
Definitions

Lease

Lease is an agreement whereby the lessor conveys to the lessee

in return for rent the right to use an asset for an agreed period
of time.
• Essential characteristics of lease:
 Existence of lessor & lessee
 Transfer of right to use the asset
 Lease payments over the term of lease
Lessor
•He is the owner of the leased goods, who hires them to users.
Lessee
•He uses the leased goods and pay hire charges to do so.
 Non-cancellable lease

A non – cancellable lease is a lease that is cancellable only in one of the

following situations.
a) Upon the occurrence of some remote contingency
b) With the permission of the lessor
c) If the lessee enters into a new lease for the same or an equivalent asset with
the same lessor
d) Upon payment by the lessee of an additional amount such that, at inception,
continuation of the lease is reasonably certain
Inception of the lease

The inception of the lease is the earlier of the date of the lease
agreement and the date of commitment by the parties to the principal
provisions of the lease. As at this date:
a) A lease is classified as either an operating lease or a finance lease; and
b) In the case of a finance lease, the amounts to be recognised at the start
of lease term are determined.
 Minimum lease payments

Minimum lease payments are the payments over the lease term that the lessee is or
can be required to make, excluding contingent rent, costs for services and taxes to be
paid by and be reimbursed to the lessor, together with:
a) For a lessee, any amounts guaranteed by the lessee or by a party related to the lessee
b) For a lessor, any residual value guaranteed to the lessor by one of the following.
i) The lessee
ii)A party related to the lessee
iii)An independent third party financially capable of meeting this guarantee
Economic Life

• Economic life is either:

a) The period over which an asset is expected to be economically usable
by one or more users, or
b) The number of production or similar units expected to be obtained
from the asset by one or more users.
Useful life

•Useful life is the estimated remaining period, from the

beginning of the lease term, without limitation by the lease
term, over which the economic benefits embodied in the asset
are expected to be consumed by the entity.
Guaranteed Residual Value

• Guaranteed residual value is:

a)For a lessee, that part of the residual value which is guaranteed by
the lessee or by a party related to the lessee (the amount of the
guarantee being the maximum amount that could, in any event,
become payable).
b)For a lessor, that part of the residual value which is guaranteed by
the lessee or by a third party unrelated to the lessor who is financially
capable of discharging the obligations under the guarantee.
Unguaranteed Residual Value

•Unguaranteed residual value is that portion of

the residual value of the leased asset, the
realisation of which by the lessor is not assured or
is guaranteed solely by a party related to the
lessor.
Gross Investment

• Gross investment in the lease is the aggregate of:

a)The minimum lease payments receivable by the
lessor under a finance lease, and
b)Any unguaranteed residual value accruing to the
lessor.
Net Investment
•Net investment in the lease is the gross investment in the lease
discounted at the interest rate implicit in the lease.
Unearned Finance Income

• Unearned finance income is the difference between:

a)The gross investment in the lease, and
b)The net investment in the lease.
Contingent Rent

•Contingent rent is that portion of the lease payments

that is not fixed in amount but is based on a factor
other than just the passage of time (Ex: percentage of
sales, amount of usage, price indices, market rates of
interest).
• 
Financial Lease

• A lease is classified as a finance

lease if it transfers substantially all
the risks and rewards incidental to
ownership.
Operating lease

• A lease is classified as an operating

lease if it does not transfer
substantially all the risks and
rewards incidental to ownership.
Accounting for lessees
Finance Lease
At commencement of the lease term,
leases should be recorded as an asset
and a liability at the lower of the fair
value of the asset and the present
value of the minimum lease payments.
Operating leases:
The lease payments should be
recognised as an expense over the
lease term on a straight-line basis,
unless another systematic basis is
more representative of the time
pattern of the user’s benefit.

Minimum lease payments shall be

apportioned between the finance
charge and the reduction of the
outstanding liability
Accounting for Lessor
Finance Lease Operating leases:

At commencement of the lease term, the lessor Assets should be presented in the balance sheet
should record a finance lease in the balance of the lessor according to the nature of the
sheet as a receivable, at an amount equal to the asset.
net investment in the lease

The lessor should recognise finance income Lease income should be recognised over the
based on a pattern reflecting a constant lease term on a straight-line basis, unless
periodic rate of return on the lessor’s net another systematic basis is more representative
investment outstanding in respect of the finance of the time pattern in which use benefit is
lease derived from the leased asset is diminished.
Disclosure- Finance Lease
Lessee Lessor

• Net carrying amount at balance sheet • Reconciliation between gross

date for each class of asset investment and present value of lease
• Reconciliation between total of payment receivables.
future lease payment and their • Unearned finance income
present value • General description of lessor’s
• General description of lessee's material leasing agreement
material leasing agreement
Disclosure- Operating lease
Lessee Lessor

• Future minimum lease payment under • Future minimum lease payment under
non-cancellable lease non-cancellable lease
• Future minimum sub-lease payments • Total contingent rents recognised as
receivables for non-cancellable sub- income
lease.
• Lease and sub-lease payments
recognised as expense