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LEASES
Objective
To prescribe appropriate accounting policies and disclosures
for
lessors and lessees in relation to leases.
AS-19
Leases
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Issuing
Authority:
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The
Institute of Chartered Accountants of India.
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Applicable
to:
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All
assets leased during accounting periods commencing
on or after 01.04.2001
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Nature:
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Mandatory
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Scope
- 1)
Applies to finance lease and operating lease.
Finance Lease is a lease that transfers substantially
all the risks & rewards incidental to the ownership
of an asset.
Operating Lease is a lease other than a Finance
Lease.
- Does
not apply to:
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Lease agreements to explore for or use natural
resources.
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Licensing agreements for patents, copy right,
films, video, recordings, plays manuscripts etc.
- Lease
agreements to use land.
- Apply
to agreements that transfer the right to use assets
even though substantial services be required for operation
& maintenance of such assets.
- Does
not apply to contract agreements for services that
do not transfer the right to use assets from one contracting
party to the other.
Finance
Lease - In the Books of the Leassee
Recognize the lease as an asset and a liability - at
an amount equal to the fair value of the leased assets
but if fair value > Present value of minimum lease
payments then at Present value of minimum lease payments.
(Present value to be calculated with discount rate equal
to interest rate implicit in the lease or lessee's incremental
borrowing rate).
Lease payment to be apportioned between the finance
charge and the reduction of the outstanding liability.
Finance charges to be allocated to periods during the
lease term so as to produce a constant rate of interest
on the remaining balance of the liability for each period.
Charge depreciation on leased asset on the same lines
as any other asset. If there is no certainty that the
lessee will obtain ownership by the end of the lease
term, the asset should be fully depreciated over the
lease term.
Finance
Lease - In the Books of Lessor
The lessor should recognize assets given under a finance
lease in its Balance Sheet as a Receivable at an amount
equal to the net investment in the lease.
Recognition of finance income should be based on a pattern
reflecting a constant periodic rate of return on net
investment outstanding.
The manufacturer or dealer lessor should recognize the
transaction of sale in P&L Account on the same lines
as on right sale.
Finance
lease - Disclosures - In the books of Lessee
In addition to AS-6 and AS-10 assets acquired under
finance lease as segregated from the assets owned.
For each class of asset, the net carrying amount at
the Balance Sheet date.
A reconciliation between the total minimum lease payments
at the Balance Sheet date and their present value.
Details of total minimum lease payment at the Balance
Sheet date
- not
> one year
- <
1 year but > 5 year
- <
5 years.
Contingent rent recognized as expenses in P&L
A/c.
Total of future minimum sublease payments expected
to be received.
General description of significant lease arrangements
-
- Basis
of terming contingent rent.
- Existence
of terms of renewal or purchase options.
- Existence
of escalation claimed.
- Restriction
imposed by lease agreement.
Finance
Lease - Disclosure - In the books of lessor
A reconciliation between the total gross investment
in the lease and the present value of minimum lease
payments receivable and period wise
- not
< one year
- <
1 year but > 5 years
- <
5 years.
Unearned finance income and unguarranted residual
value
Accumulated provision for uncollectable minimum lease
payment receivable.
Contingent rent recognized as income in P&L A/c.
General description of the significant lease arrangements.
Accounting policy adopted in respect of initial direct
cost
Operating
Lease - Accounting Treatment - In the Books of Lessee
Lease payment to be recognized as an expense in P&L
Account on Straight-line basis over the lease term unless
other systematic basis for better representation of
time pattern is identified.
Operating
Lease - Accounting Treatment - In the Books of Lessor
Asset given under operating lease to be prescribed as
a fixed asset in its Balance Sheet.
Lease income should be recognized in P&L Account
on a straight line basis.
Depreciation on leased asset to be charged under normal
depreciation policy on consistence basis as set out
AS-6 Depreciation Accounting.
Initial direct costs are either deferred or recognized
as expense in P&L
Operating
Lease - Disclosures -In the books of the Lessee
The total of future minimum lease payments under non-cancellable
operating lease for a period.
- not
later than one year
- within
1 to 5 years
- more
than 5 years.
Lease payments
recognized in P&L Account for the period separately
for minimum lease payments contingent rents.
General description of the lease arrangements including
terms for payment of contingent rents, escalation claims,
renewal or purchase options and restriction on dividend,
debts or further lease.
Total further minimum sublease payment receivable and
sublease payment received.
Operating
Lease - Disclosures - In the books of the lessor
In
addition to AS-6, AS-10 Gross carrying amount accumulated
depreciation and accumulation impairment losses for
each class of assets.
Depreciation, impairment loss reversal of impairment
loss recognized in the P&L Account for the period.
Future minimum lease payments.
Total contingent rent recognized as income and P&L
Account
Accounting policy for initial direct costs.
General description of lessor's significant leasing
arrangements.
Sale
& Leaseback Resulting in Finance Lease
Any excess or deficiency of sale proceeds over the carrying
amount is not to be recognized immediately as profit/loss
in the books of seller-lessee but should be amortised
over the lease term in proportion to the depreciation
of the leased assets.
Sale
& Leaseback Transaction Resulting in Operating Lease
If transaction at fair value, recognized profit / loss
immediately.
If sale price is below fair value profit/loss to be
recognized immediately (except when compensated by future
lease payments at below fair value - to be amortized
over the expected period of use).
If sale price is above fair value excess over fair value
to be deferred and amortized over the period of expected
use.
If fair value is less than the carrying amount of the
assets, a loss equal to the difference should be recognized
immediately.
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