TMI BlogCompanies (Indian Accounting Standards) Amendment Rules, 2019X X X X Extracts X X X X X X X X Extracts X X X X ..... ity uses fair value in its opening Ind AS Balance Sheet as deemed cost for an item of property, plant and equipment, an intangible asset or a right-of-use asset (see paragraphs D5 and D7), the entity s first Ind AS financial statements shall disclose, for each line item in the opening Ind AS Balance Sheet: (a) the aggregate of those fair values; and (b) the aggregate adjustment to the carrying amounts reported under previous GAAP. ; (ii)for paragraph 39AB, the following paragraph shall be substituted, namely:- 39AB Ind AS 116, Leases, amended paragraphs 30, C4, D1, D7, D8B, D9 and D9AA, deleted paragraph D9A and added paragraphs D9B D9E. An entity shall apply those amendments when it applies Ind AS 116. (iii) in Appendix C, in paragraph C4, for item (f), the following item shall be substituted, namely:- (f) If an asset acquired, or liability assumed, in a past business combination was not recognised in accordance with previous GAAP, it does not have a deemed cost of zero in the opening Ind AS Balance Sheet. Instead, the acquirer shall recognise and measure it in its consolidated Balance Sheet on the basis that Ind ASs would require in the Balance Sheet of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject to oversight and/or approval by a rate regulator (as defined in Ind AS 114, Regulatory Deferral Accounts). ; (d) for paragraph D9, the following paragraph shall be substituted, namely:- D9 A first-time adopter may assess whether a contract existing at the date of transition to Ind ASs contains a lease by applying paragraphs 9-11 of Ind AS 116 to those contracts on the basis of facts and circumstances existing at that date. ; (e) paragraph D9A shall be omitted; (f) for paragraph D9AA, the following paragraph shall be substituted, namely:- D9AA When a lease includes both land and building elements, a first time adopter lessor may assess the classification of each element as finance or an operating lease at the date of transition to Ind ASs on the basis of the facts and circumstances existing as at that date. ; (g) after paragraph D9AA, the following paragraph shall be inserted, namely:- D9B When a first-time adopter that is a lessee recognises lease liabilities and right-of-use assets, it may apply the following approach to all of its leases (subject to the practical expedients described in paragraph D9D):- (a) measure a lease liability at the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lease, initial direct costs and lease term are defined terms in Ind AS 116 and are used in this Standard with the same meaning. ; (v) In Appendix 1, (a) for paragraph 12, the following paragraph shall be substituted, namely:- 12. Following paragraph numbers appear as deleted in IFRS 1. In order to maintain consistency with paragraph numbers of IFRS 1, the paragraph numbers are retained in Ind AS 101: (i) Paragraph 19 (ii) Paragraph D1(e) (iii) Paragraph D1(o) (iv) Paragraphs D9A and D9C (v)Paragraphs D10-11 (vi) Paragraph D24 (vii)Paragraph D31 ; (b) for paragraphs 13 and 14, the following paragraphs shall be substituted, namely:- 13. IAS 40, Investment Property permits both cost model and fair value model (except in some situations) for measurement of investment properties after initial recognition. Ind AS 40, Investment Property, permits only the cost model. As a consequence, paragraph 30 is amended and paragraphs D7(a) and D9C are deleted. 14. Paragraphs 34-39W and 39Y-39AA have not been included in Ind AS 101 as these paragraphs relate to effective date and are not relevant in Indian context. However, in order to maintain consist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset such as a building or a patent that is subject to an operating lease in which the acquiree is the lessor, the acquirer shall take into account the terms of the lease. The acquirer does not recognise a separate asset or liability if the terms of an operating lease are either favourable or unfavourable when compared with market terms. ; (vi) in Appendix 1, (a) for paragraph 5, the following paragraphs shall be substituted, namely:- 5 Paragraphs 64-64J and 64L related to effective date have not been included in Ind AS 103 as these are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IFRS 3, these paragraph numbers are retained in Ind AS 103. 6. The following paragraph numbers appear as Deleted in IFRS 3. In order to maintain consistency with paragraph numbers of Ind AS 103, the paragraph numbers are retained in Ind AS 103: (a) Paragraph B28- B30 (b) Paragraph B32(a) ; III. in Indian Accounting Standard (Ind AS) 104 , - (i) in paragraph 4, for item (c), the following item shall be substituted, namely:- (c) contractual rights or contractual obligations that are contingent on the future use of, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em shall be substituted, namely:- (b) rights and obligations under leases to which Ind AS 116, Leases applies. However: (i) finance lease receivables (i.e. net investments in finance leases) and operating lease receivables recognised by a lessor are subject to the derecognition and impairment requirements of this Standard; (ii) lease liabilities recognised by a lessee are subject to the derecognition requirements in paragraph 3.3.1 of this Standard; and (iii) derivatives that are embedded in leases are subject to the embedded derivatives requirements of this Standard. ; (ii) in paragraph 5.5.15, for item (b), the following item shall be substituted, namely:- (b) lease receivables that result from transactions that are within the scope of Ind AS 116, if the entity chooses as its accounting policy to measure the loss allowance at an amount equal to lifetime expected credit losses. That accounting policy shall be applied to all lease receivables but may be applied separately to finance and operating lease receivables. ; (iii) after paragraph 7.1.4, the following paragraph shall be inserted, namely:- 7.1.5 Ind AS 116 amended paragraphs 2.1, 5.5.15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Liabilities with Equity Instruments contained in Ind AS 109, Financial Instruments. ; (iii) in Appendix 1, after paragraph 2, the following paragraph shall be inserted, namely:- 3. Paragraphs C1-C5 of IFRS 13 have not been included in Ind AS 113 as these paragraphs relate to effective date and transition which are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IFRS 13, these paragraph numbers are retained in Ind AS 113. . VII. in Indian Accounting Standard (Ind AS) 115 , - (i) in paragraph 5, for item (a), the following item shall be substituted, namely:- (a) lease contracts within the scope of Ind AS 116, Leases; ; (ii) in paragraph 97, for item (c), the following item shall be substituted, namely:- (c) allocations of costs that relate directly to the contract or to contract activities (for example, costs of contract management and supervision, insurance and depreciation of tools, equipment and right-of-use assets used in fulfilling the contract); ; (iii)In Appendix B, (a) in paragraph B66, for item (a), the following item shall be substituted, namely:- (a) a lease in accordance with Ind A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely:- 5. Certain aspects and disclosures relating to some service concession arrangements are addressed by Indian Accounting Standards (eg Ind AS 16 applies to acquisitions of items of property, plant and equipment, Ind AS 116 applies to leases of assets, and Ind AS 38 applies to acquisitions of intangible assets). However, a service concession arrangement may involve executory contracts that are not addressed in Indian Accounting Standards, unless the contracts are onerous, in which case Ind AS 37 applies. Therefore, this Appendix addresses additional disclosures of service concession arrangements. ; (vii) in Appendix F, paragraph 1 shall be omitted. (viii) in Appendix 1, (a) for paragraph 6, the following paragraph shall be substituted, namely:- 6. Paragraphs C1B, C8A and C9 related to effective date and transition have been deleted due to following reasons: (a) Paragraphs C1B and C8A are not relevant in Indian context as the same refer to application of these amendments in case where IFRS 15 was initially applied before issuance of amendments to the standard. (b) Paragraph C9 refers to application of IAS 39, Financial Instruments, which is not relevant in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he underlying asset is of low value (as described in paragraphs B3 B8). 6 If a lessee elects not to apply the requirements in paragraphs 22 49 to either short-term leases or leases for which the underlying asset is of low value, the lessee shall recognise the lease payments associated with those leases as an expense on either a straight-line basis over the lease term or another systematic basis. The lessee shall apply another systematic basis if that basis is more representative of the pattern of the lessee s benefit. 7 If a lessee accounts for short-term leases applying paragraph 6, the lessee shall consider the lease to be a new lease for the purposes of this Standard if: (a) there is a lease modification; or (b) there is any change in the lease term (for example, the lessee exercises an option not previously included in its determination of the lease term). 8 The election for short-term leases shall be made by class of underlying asset to which the right of use relates. A class of underlying asset is a grouping of underlying assets of a similar nature and use in an entity s operations. The election for leases for which the underlying asset is of low value can be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l account for non-lease components applying other applicable Standards. Lessor 17 For a contract that contains a lease component and one or more additional lease or non-lease components, a lessor shall allocate the consideration in the contract applying paragraphs 73 90 of Ind AS 115. Lease term (paragraphs B34 B41)_____________________________________________ 18 An entity shall determine the lease term as the non-cancellable period of a lease, together with both: (a) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and (b) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. 19 In assessing whether a lessee is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, an entity shall consider all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease, as described in paragraphs B37 B40. 20 A lessee shall reassess whether it is reasonably certain to exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osts described in paragraph 24(d) as part of the cost of the right-of-use asset when it incurs an obligation for those costs. A lessee applies Ind AS 2, Inventories, to costs that are incurred during a particular period as a consequence of having used the right-of-use asset to produce inventories during that period. The obligations for such costs accounted for applying this Standard or Ind AS 2 are recognised and measured applying Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets. Initial measurement of the lease liability 26 At the commencement date, a lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date. The lease payments shall be discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the lessee shall use the lessee s incremental borrowing rate. 27 At the commencement date, the lease payments included in the measurement of the lease liability comprise the following payments for the right to use the underlying asset during the lease term that are not paid at the commencement date: (a) fixed payments (in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls 34 [Refer Appendix 1]. 35 If right-of-use assets relate to a class of property, plant and equipment to which the lessee applies the revaluation model in Ind AS 16, a lessee may elect to apply that revaluation model to all of the right-of-use assets that relate to that class of property, plant and equipment. Subsequent measurement of the lease liability 36 After the commencement date, a lessee shall measure the lease liability by: (a) increasing the carrying amount to reflect interest on the lease liability; (b) reducing the carrying amount to reflect the lease payments made; and (c) remeasuring the carrying amount to reflect any reassessment or lease modifications specified in paragraphs 39 46, or to reflect revised in-substance fixed lease payments (see paragraph B42). 37 Interest on the lease liability in each period during the lease term shall be the amount that produces a constant periodic rate of interest on the remaining balance of the lease liability. The periodic rate of interest is the discount rate described in paragraph 26, or if applicable the revised discount rate described in paragraph 41, paragraph 43 or paragraph 45(c). 38 Af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments, including for example a change to reflect changes in market rental rates following a market rent review. The lessee shall remeasure the lease liability to reflect those revised lease payments only when there is a change in the cash flows (ie when the adjustment to the lease payments takes effect). A lessee shall determine the revised lease payments for the remainder of the lease term based on the revised contractual payments. 43 In applying paragraph 42, a lessee shall use an unchanged discount rate, unless the change in lease payments results from a change in floating interest rates. In that case, the lessee shall use a revised discount rate that reflects changes in the interest rate. Lease modifications 44 A lessee shall account for a lease modification as a separate lease if both: (a) the modification increases the scope of the lease by adding the right to use one or more underlying assets; and (b) the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract. 45 For a lease modifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse on the lease liability is a component of finance costs, which paragraph 82(b) of Ind AS 1, Presentation of Financial Statements, requires to be presented separately in the statement of profit and loss. 50 In the statement of cash flows, a lessee shall classify: (a) cash payments for the principal portion of the lease liability within financing activities; (b) cash payments for the interest portion of the lease liability within financing activities applying the requirements in Ind AS 7, Statement of Cash Flows, for interest paid; and (c) short-term lease payments, payments for leases of low-value assets and variable lease payments not included in the measurement of the lease liability within operating activities. Disclosure 51 The objective of the disclosures is for lessees to disclose information in the notes that, together with the information provided in the balance sheet, statement of profit and loss and statement of cash flows, gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of the lessee. Paragraphs 52 60 specify requirements on how to meet this object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S 16, the lessee shall disclose the information required by paragraph 77 of Ind AS 16 for those right-of-use assets. 58 A lessee shall disclose a maturity analysis of lease liabilities applying paragraphs 39 and B11 of Ind AS 107, Financial Instruments: Disclosures, separately from the maturity analyses of other financial liabilities. 59 In addition to the disclosures required in paragraphs 53 58, a lessee shall disclose additional qualitative and quantitative information about its leasing activities necessary to meet the disclosure objective in paragraph 51 (as described in paragraph B48). This additional information may include, but is not limited to, information that helps users of financial statements to assess: (a) the nature of the lessee s leasing activities; (b) future cash outflows to which the lessee is potentially exposed that are not reflected in the measurement of lease liabilities. This includes exposure arising from: (i) variable lease payments (as described in paragraph B49); (ii) extension options and termination options (as described in paragraph B50); (iii) residual value guarantees (as described in paragraph B51); and (iv) leases not yet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinue the lease for a secondary period at a rent that is substantially lower than market rent. 65 The examples and indicators in paragraphs 63 64 are not always conclusive. If it is clear from other features that the lease does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset, the lease is classified as an operating lease. For example, this may be the case if ownership of the underlying asset transfers at the end of the lease for a variable payment equal to its then fair value, or if there are variable lease payments, as a result of which the lessor does not transfer substantially all such risks and rewards. 66 Lease classification is made at the inception date and is reassessed only if there is a lease modification. Changes in estimates (for example, changes in estimates of the economic life or of the residual value of the underlying asset), or changes in circumstances (for example, default by the lessee), do not give rise to a new classification of a lease for accounting purposes. Finance leases Recognition and measurement 67 At the commencement date, a lessor shall recognise assets held under a finance lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uing to the lessor, discounted using a market rate of interest; (b) the cost of sale being the cost, or carrying amount if different, of the underlying asset less the present value of the unguaranteed residual value; and (c) selling profit or loss (being the difference between revenue and the cost of sale) in accordance with its policy for outright sales to which Ind AS 115 applies. A manufacturer or dealer lessor shall recognise selling profit or loss on a finance lease at the commencement date, regardless of whether the lessor transfers the underlying asset as described in Ind AS 115. 72 Manufacturers or dealers often offer to customers the choice of either buying or leasing an asset. A finance lease of an asset by a manufacturer or dealer lessor gives rise to profit or loss equivalent to the profit or loss resulting from an outright sale of the underlying asset, at normal selling prices, reflecting any applicable volume or trade discounts. 73 Manufacturer or dealer lessors sometimes quote artificially low rates of interest in order to attract customers. The use of such a rate would result in a lessor recognising an excessive portion of the total income from the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification to a finance lease that is not accounted for as a separate lease, a lessor shall account for the modification as follows: (a) if the lease would have been classified as an operating lease had the modification been in effect at the inception date, the lessor shall: (i) account for the lease modification as a new lease from the effective date of the modification; and (ii) measure the carrying amount of the underlying asset as the net investment in the lease immediately before the effective date of the lease modification. (b) otherwise, the lessor shall apply the requirements of Ind AS 109. Operating leases Recognition and measurement 81 A lessor shall recognise lease payments from operating leases as income on either a straight-line basis or another systematic basis. The lessor shall apply another systematic basis if that basis is more representative of the pattern in which benefit from the use of the underlying asset is diminished. 82 A lessor shall recognise costs, including depreciation, incurred in earning the lease income as an expense. 83 A lessor shall add initial direct costs incurred in obtaining an operating lease to the carrying a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89. This additional information includes, but is not limited to, information that helps users of financial statements to assess: (a) the nature of the lessor s leasing activities; and (b) how the lessor manages the risk associated with any rights it retains in underlying assets. In particular, a lessor shall disclose its risk management strategy for the rights it retains in underlying assets, including any means by which the lessor reduces that risk. Such means may include, for example, buy-back agreements, residual value guarantees or variable lease payments for use in excess of specified limits. Finance leases 93 A lessor shall provide a qualitative and quantitative explanation of the significant changes in the carrying amount of the net investment in finance leases. 94 A lessor shall disclose a maturity analysis of the lease payments receivable, showing the undiscounted lease payments to be received on an annual basis for a minimum of each of the first five years and a total of the amounts for the remaining years. A lessor shall reconcile the undiscounted lease payments to the net investment in the lease. The reconciliation shall identify the unearned finance i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 101 If the fair value of the consideration for the sale of an asset does not equal the fair value of the asset, or if the payments for the lease are not at market rates, an entity shall make the following adjustments to measure the sale proceeds at fair value: (a) any below-market terms shall be accounted for as a prepayment of lease payments; and (b) any above-market terms shall be accounted for as additional financing provided by the buyer-lessor to the seller-lessee. 102 The entity shall measure any potential adjustment required by paragraph 101 on the basis of the more readily determinable of: (a) the difference between the fair value of the consideration for the sale and the fair value of the asset; and (b) the difference between the present value of the contractual payments for the lease and the present value of payments for the lease at market rates. Transfer of the asset is not a sale 103 If the transfer of an asset by the seller-lessee does not satisfy the requirements of Ind AS 115 to be accounted for as a sale of the asset: (a) the seller-lessee shall continue to recognise the transferred asset and shall recognise a financial liability equal t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase The rate of interest that causes the present value of (a) the lease payments and (b) the unguaranteed residual value to equal the sum of (i) the fair value of the underlying asset and (ii) any initial direct costs of the lessor. Lease A contract, or part of a contract, that conveys the right to use an asset (the underlying asset ) for a period of time in exchange for consideration. lease incentives Payments made by a lessor to a lessee associated with a lease, or the reimbursement or assumption by a lessor of costs of a lessee. Lease Modification A change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease(for example, adding or terminating the right to use one or more underlying assets, or extending or shortening the contractual lease term). lease payments Payments made by a lessee to a lessor relating to the right to use an underlying asset during the lease term, comprising the following: (a) fixed pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antially all the risks and rewards incidental to ownership of an underlying asset. optional lease Payments Payments to be made by a lessee to a lessor for the right to use an underlying asset during periods covered by an option to extend or terminate a lease that are not included in the lease term. period of use The total period of time that an asset is used to fulfil a contract with a customer (including any non-consecutive periods of time). residual value Guarantee A guarantee made to a lessor by a party unrelated to the lessor that the value (or part of the value) of an underlying asset at the end of a lease will be at least a specified amount. right-of-use asset An asset that represents a lessee s right to use an underlying asset for the lease term. short-term lease A lease that, at the commencement date , has a lease term of 12 months or less. A lease that contains a purchase option is not a short-term lease. Sublease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tfolio. Combination of contracts B2 In applying this Standard, an entity shall combine two or more contracts entered into at or near the same time with the same counterparty (or related parties of the counterparty), and account for the contracts as a single contract if one or more of the following criteria are met: (a) the contracts are negotiated as a package with an overall commercial objective that cannot be understood without considering the contracts together; (b) the amount of consideration to be paid in one contract depends on the price or performance of the other contract; or (c) the rights to use underlying assets conveyed in the contracts (or some rights to use underlying assets conveyed in each of the contracts) form a single lease component as described in paragraph B32. Recognition exemption: leases for which the underlying asset is of low value (paragraphs 5 8) B3 Except as specified in paragraph B7, this Standard permits a lessee to apply paragraph 6 to account for leases for which the underlying asset is of low value. A lessee shall assess the value of an underlying asset based on the value of the asset when it is new, regardless of the age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract contains a lease, an entity shall assess whether the joint arrangement has the right to control the use of an identified asset throughout the period of use. B12 An entity shall assess whether a contract contains a lease for each potential separate lease component. Refer to paragraph B32 for guidance on separate lease components. Identified asset B13 An asset is typically identified by being explicitly specified in a contract. However, an asset can also be identified by being implicitly specified at the time that the asset is made available for use by the customer. Substantive substitution rights B14 Even if an asset is specified, a customer does not have the right to use an identified asset if the supplier has the substantive right to substitute the asset throughout the period of use. A supplier s right to substitute an asset is substantive only if both of the following conditions exist: (a) the supplier has the practical ability to substitute alternative assets throughout the period of use (for example, the customer cannot prevent the supplier from substituting the asset and alternative assets are readily available to the supplier or could be sourced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d asset if it is physically distinct (for example, a floor of a building). A capacity or other portion of an asset that is not physically distinct (for example, a capacity portion of a fibre optic cable) is not an identified asset, unless it represents substantially all of the capacity of the asset and thereby provides the customer with the right to obtain substantially all of the economic benefits from use of the asset. Right to obtain economic benefits from use B21 To control the use of an identified asset, a customer is required to have the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use (for example, by having exclusive use of the asset throughout that period). A customer can obtain economic benefits from use of an asset directly or indirectly in many ways, such as by using, holding or sub-leasing the asset. The economic benefits from use of an asset include its primary output and by-products (including potential cash flows derived from these items), and other economic benefits from using the asset that could be realised from a commercial transaction with a third party. B22 When assessing the right to obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of use. How and for what purpose the asset is used B25 A customer has the right to direct how and for what purpose the asset is used if, within the scope of its right of use defined in the contract, it can change how and for what purpose the asset is used throughout the period of use. In making this assessment, an entity considers the decision-making rights that are most relevant to changing how and for what purpose the asset is used throughout the period of use. Decision-making rights are relevant when they affect the economic benefits to be derived from use. The decision-making rights that are most relevant are likely to be different for different contracts, depending on the nature of the asset and the terms and conditions of the contract. B26 Examples of decision-making rights that, depending on the circumstances, grant the right to change how and for what purpose the asset is used, within the defined scope of the customer s right of use, include: (a) rights to change the type of output that is produced by the asset (for example, to decide whether to use a shipping container to transport goods or for storage, or to decide upon the mix of products sold from retail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same rights as any customer that purchases goods or services. Protective rights B30 A contract may include terms and conditions designed to protect the supplier s interest in the asset or other assets, to protect its personnel, or to ensure the supplier s compliance with laws or regulations. These are examples of protective rights. For example, a contract may (i) specify the maximum amount of use of an asset or limit where or when the customer can use the asset, (ii) require a customer to follow particular operating practices, or (iii) require a customer to inform the supplier of changes in how an asset will be used. Protective rights typically define the scope of the customer s right of use but do not, in isolation, prevent the customer from having the right to direct the use of an asset. B31 The following flowchart may assist entities in making the assessment of whether a contract is, or contains, a lease. Separating components of a contract (paragraphs 12 17) B32 The right to use an underlying asset is a separate lease component if both: (a) the lessee can benefit from use of the underlying asset either on its own or together with other resources t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to terminate the lease. The entity considers all relevant facts and circumstances that create an economic incentive for the lessee to exercise, or not to exercise, the option, including any expected changes in facts and circumstances from the commencement date until the exercise date of the option. Examples of factors to consider include, but are not limited to: (a) contractual terms and conditions for the optional periods compared with market rates, such as: (i) the amount of payments for the lease in any optional period; (ii) the amount of any variable payments for the lease or other contingent payments, such as payments resulting from termination penalties and residual value guarantees; and (iii) the terms and conditions of any options that are exercisable after initial optional periods (for example, a purchase option that is exercisable at the end of an extension period at a rate that is currently below market rates). (b) significant leasehold improvements undertaken (or expected to be undertaken) over the term of the contract that are expected to have significant economic benefit for the lessee when the option to extend or terminate the lease, or to purchase the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessing whether it is reasonably certain to exercise an option on leases of those assets. B41 Paragraph 20 specifies that, after the commencement date, a lessee reassesses the lease term upon the occurrence of a significant event or a significant change in circumstances that is within the control of the lessee and affects whether the lessee is reasonably certain to exercise an option not previously included in its determination of the lease term, or not to exercise an option previously included in its determination of the lease term. Examples of significant events or changes in circumstances include: (a) significant leasehold improvements not anticipated at the commencement date that are expected to have significant economic benefit for the lessee when the option to extend or terminate the lease, or to purchase the underlying asset, becomes exercisable; (b) a significant modification to, or customisation of, the underlying asset that was not anticipated at the commencement date; (c) the inception of a sublease of the underlying asset for a period beyond the end of the previously determined lease term; and (d) a business decision of the lessee that is directly r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derlying asset, the lessee shall account for those costs applying other applicable Standards, such as Ind AS 16. Costs relating to the construction or design of an underlying asset do not include payments made by the lessee for the right to use the underlying asset. Payments for the right to use an underlying asset are payments for a lease, regardless of the timing of those payments. Legal title to the underlying asset B45 A lessee may obtain legal title to an underlying asset before that legal title is transferred to the lessor and the asset is leased to the lessee. Obtaining legal title does not in itself determine how to account for the transaction. B46 If the lessee controls (or obtains control of) the underlying asset before that asset is transferred to the lessor, the transaction is a sale and leaseback transaction that is accounted for applying paragraphs 98 103. B47 However, if the lessee does not obtain control of the underlying asset before the asset is transferred to the lessor, the transaction is not a sale and leaseback transaction. For example, this may be the case if a manufacturer, a lessor and a lessee negotiate a transaction for the purchase of an as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich variable lease payments depend and how payments are expected to vary in response to changes in those key variables; and (d) other operational and financial effects of variable lease payments. B50 Additional information relating to extension options or termination options that, depending on the circumstances, may be needed to satisfy the disclosure objective in paragraph 51 could include information that helps users of financial statements to assess, for example: (a) the lessee s reasons for using extension options or termination options and the prevalence of those options; (b) the relative magnitude of optional lease payments to lease payments; (c) the prevalence of the exercise of options that were not included in the measurement of lease liabilities; and (d) other operational and financial effects of those options. B51 Additional information relating to residual value guarantees that, depending on the circumstances, may be needed to satisfy the disclosure objective in paragraph 51 could include information that helps users of financial statements to assess, for example: (a) the lessee s reasons for providing residual value guarantees and the prevalence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding any lump-sum upfront payments) between the land and the buildings elements in proportion to the relative fair values of the leasehold interests in the land element and buildings element of the lease at the inception date. If the lease payments cannot be allocated reliably between these two elements, the entire lease is classified as a finance lease, unless it is clear that both elements are operating leases, in which case the entire lease is classified as an operating lease. B57 For a lease of land and buildings in which the amount for the land element is immaterial to the lease, a lessor may treat the land and buildings as a single unit for the purpose of lease classification and classify it as a finance lease or an operating lease applying paragraphs 62 66 and B53 B54. In such a case, a lessor shall regard the economic life of the buildings as the economic life of the entire underlying asset. Sublease classification B58 In classifying a sublease, an intermediate lessor shall classify the sublease as a finance lease or an operating lease as follows: (a) if the head lease is a short-term lease that the entity, as a lessee, has accounted for applying paragraph 6, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agraph C5(b), the lessee shall not restate comparative information. Instead, the lessee shall recognise the cumulative effect of initially applying this Standard as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the date of initial application. Leases previously classified as operating leases C8 If a lessee elects to apply this Standard in accordance with paragraph C5(b), the lessee shall: (b) recognise a lease liability at the date of initial application for leases previously classified as an operating lease applying Ind AS 17. The lessee shall measure that lease liability at the present value of the remaining lease payments, discounted using the lessee s incremental borrowing rate at the date of initial application. (c) recognise a right-of-use asset at the date of initial application for leases previously classified as an operating lease applying Ind AS 17. The lessee shall choose, on a lease-by-lease basis, to measure that right-of-use asset at either: (i) its carrying amount as if the Standard had been applied since the commencement date, but discounted using the lessee s incremental borrowing rate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se in the annual reporting period that includes the date of initial application. (d) a lessee may exclude initial direct costs from the measurement of the right-of-use asset at the date of initial application. (e) a lessee may use hindsight, such as in determining the lease term if the contract contains options to extend or terminate the lease. Leases previously classified as finance leases C11 If a lessee elects to apply this Standard in accordance with paragraph C5(b), for leases that were classified as finance leases applying Ind AS 17, the carrying amount of the right-of-use asset and the lease liability at the date of initial application shall be the carrying amount of the lease asset and lease liability immediately before that date measured applying Ind AS 17. For those leases, a lessee shall account for the right-of-use asset and the lease liability applying this Standard from the date of initial application. Disclosure C12 If a lessee elects to apply this Standard in accordance with paragraph C5(b), the lessee shall disclose information about initial application required by paragraph 28 of Ind AS 8, except for the information specified in paragraph 28( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continue to amortise any gain on sale over the lease term. C18 If a sale and leaseback transaction was accounted for as a sale and operating lease applying Ind AS 17, the seller-lessee shall: (a) account for the leaseback in the same way as it accounts for any other operating lease that exists at the date of initial application; and (b) adjust the leaseback right-of-use asset for any deferred gains or losses that relate to off-market terms recognised in the balance sheet immediately before the date of initial application. Amounts previously recognised in respect of business combinations C19 If a lessee previously recognised an asset or a liability applying Ind AS 103, Business Combinations, relating to favourable or unfavourable terms of an operating lease acquired as part of a business combination, the lessee shall derecognise that asset or liability and adjust the carrying amount of the right-of-use asset by a corresponding amount at the date of initial application. C20 [Refer Appendix 1] Withdrawal of other Standards________________________________________________ C21 This Standard supersedes Ind AS 17, Leases. Appendix 1 Note: This Append ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to other entities; ; (ii) after paragraph 139N, the following paragraphs shall be inserted, namely:- 139 O-139P Omitted * 139Q Ind AS 116, Leases, amended paragraph 123. An entity shall apply that amendment when it applies Ind AS 116. ; (iii) in Appendix 1, for paragraph 10, the following paragraph shall be substituted, namely:- 10. Paragraphs 139 to 139M and 139O-139P related to Transition and Effective Date have not been included in Ind AS 1 as these are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 1, these paragraph numbers are retained in Ind AS 1. . X. in Indian Accounting Standard (Ind AS) 2 , - (i) for paragraph 12, the following paragraph shall be substituted, namely:- 12 The costs of conversion of inventories include costs directly related to the units of production, such as direct labour. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production, such as depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other restatement of an asset to fair value affects taxable profit (tax loss) for the current period. As a result, the tax base of the asset is adjusted and no temporary difference arises. In other jurisdictions, the revaluation or restatement of an asset does not affect taxable profit in the period of the revaluation or restatement and, consequently, the tax base of the asset is not adjusted. Nevertheless, the future recovery of the carrying amount will result in a taxable flow of economic benefits to the entity and the amount that will be deductible for tax purposes will differ from the amount of those economic benefits. The difference between the carrying amount of a revalued asset and its tax base is a temporary difference and gives rise to a deferred tax liability or asset. This is true even if: (a) the entity does not intend to dispose of the asset. In such cases, the revalued carrying amount of the asset will be recovered through use and this will generate taxable income which exceeds the depreciation that will be allowable for tax purposes in future periods; or (b) tax on capital gains is deferred if the proceeds of the disposal of the asset are invested in similar a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eparately each such part. For example, it may be appropriate to depreciate separately the airframe and engines of an aircraft. Similarly, if an entity acquires property, plant and equipment subject to an operating lease in which it is the lessor, it may be appropriate to depreciate separately amounts reflected in the cost of that item that are attributable to favourable or unfavourable lease terms relative to market terms. ; (vi) for paragraphs 68 and 69, the following paragraphs shall be substituted, namely:- 68 The gain or loss arising from the derecognition of an item of property, plant and equipment shall be included in profit or loss when the item is derecognised (unless Ind AS 116, Leases, requires otherwise on a sale and leaseback). Gains shall not be classified as revenue. 69. The disposal of an item of property, plant and equipment may occur in a variety of ways (eg by sale, by entering into a finance lease or by donation). The date of disposal of an item of property, plant and equipment is the date the recipient obtains control of that item in accordance with the requirements for determining when a performance obligation is satisfied in Ind AS 115. Ind AS 116 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts or a variable amount of assets in which the fair value to be received (or delivered) equals a fixed or determinable number of units of currency is a monetary item. Conversely, the essential feature of a non-monetary item is the absence of a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: amounts prepaid for goods and services; goodwill; intangible assets; inventories; property, plant and equipment; right-of-use assets and provisions that are to be settled by the delivery of a non-monetary asset. ; (ii) after paragraph 57, the following paragraphs shall be inserted, namely:- Effective date and transition_________________________________________________ 58-60J Omitted* 60K Ind AS 116 amended paragraph 16. An entity shall apply that amendment when it applies Ind AS 116. ; (iii) in Appendix 1, after paragraph 4, the following paragraph shall be inserted, namely:- 5. Paragraphs 58-60J of IAS 21 have not been included in Ind AS 21 as these paragraphs relate to Effective date and transition. However, in order to maintain consistency with paragraph numbers of IAS 21, these paragraph numbers ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sor continues to account for the underlying asset itself rather than any amount receivable in the future under the contract. Accordingly, a lessor does not regard an operating lease as a financial instrument, except as regards individual payments currently due and payable by lessee. AG10 Physical assets (such as inventories, property, plant and equipment), right-of-use assets and intangible assets (such as patents and trademarks) are not financial assets. Control of such physical assets, right-of-use assets and intangible assets creates an opportunity to generate an inflow of cash or another financial asset, but it does not give rise to a present right to receive cash or another financial asset. ; (iii)in Appendix 1, for paragraph 2, the following paragraph shall be substituted, namely:- 2. Paragraphs 96-97P and 97R related to Transitional Provisions and Effective date given in IAS 32 have not been given in Ind AS 32, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting Stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or paragraphs 113 and 114, the following paragraphs shall be substituted, namely:- 113 The gain or loss arising from the derecognition of an intangible asset shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset. It shall be recognised in profit or loss when the asset is derecognised (unless Ind AS 116 requires otherwise on a sale and leaseback). Gains shall not be classified as revenue. 114 The disposal of an intangible asset may occur in a variety of ways (e.g. by sale, by entering into a finance lease, or by donation). The date of disposal of an intangible asset is the date that the recipient obtains control of that asset in accordance with the requirements for determining when a performance obligation is satisfied in Ind AS 115, Revenue from Contracts with Customers. Ind AS 116 applies to disposal by a sale and leaseback. ; (iv) after paragraph 130K, the following paragraph shall be inserted, namely:- 130L Ind AS 116 amended paragraphs 3, 6, 113 and 114. An entity shall apply those amendments when it applies Ind AS 116. ; (v) in Appendix A, for paragraph 6, the following paragraph shall be substi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... namely:- (c) owner-occupied property (see Ind AS 16 and Ind AS 116), including (among other things) property held for future use as owner-occupied property, property held for future development and subsequent use as owner-occupied property, property occupied by employees (whether or not the employees pay rent at market rates) and owner-occupied property awaiting disposal. ; (vi) for paragraph 16, the following paragraph shall be substituted, namely:- 16 An owned investment property shall be recognised as an asset when, and only when: (a) it is probable that the future economic benefits that are associated with the investment property will flow to the entity; and (b) the cost of the investment property can be measured reliably. ; (vii) after paragraph 19, the following paragraph shall be inserted, namely:- 19A An investment property held by a lessee as a right-of-use asset shall be recognised in accordance with Ind AS 116. ; (viii) for paragraph 20, the following paragraph shall be substituted, namely:- 20 An owned investment property shall be measured initially at its cost. Transaction costs shall be included in the initial measurement. ; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es into which it has entered. A lessee that holds an investment property as a righ-of-use asset provides lessees disclosures as required by Ind AS 116 and lessors disclosures as required by Ind AS 116 for any operating leases into which it has entered. ; (xvi) for paragraph 84B, the following paragraph shall be substituted, namely:- Ind AS 116 84B An entity applying Ind AS 116, and its related amendments to this Standard, for the first time shall apply the transition requirements in Appendix C of Ind AS 116 to its investment property held as right-of-use asset. ; (xvii) for paragraph 85F, the following paragraph shall be substituted, namely:- 85F Ind AS 116, amended the scope of Ind AS 40 by defining investment property to include both owned investment property and property held by a lessee as a right-of-use asset. Ind AS 116 amended paragraphs 5, 7, 8, 9, 16, 20, 56, 67, 69 and 74, added paragraphs 19A, 29A, 40A and 84B and its related heading and deleted paragraphs 3, 25 and 26. An entity shall apply those amendments when it applies Ind AS 116. ; (xviii) in Appendix 1, (a) for paragraph 1, the following paragraph shall be substituted, namely:- 1 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) after paragraph 57, following paragraphs shall be inserted, namely:- Effective date and transition_________________________________________________ 58-63 Omitted* 64 Ind AS 116 amended paragraph 2. An entity shall apply that amendment when it applies Ind AS 116. ; (iii) in Appendix 1, after paragraph 2, following paragraph shall be inserted, namely:- 3. Paragraphs 58-63 of IAS 41 have not been included in Ind AS 41 as these paragraphs relate to effective date and transition which is not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 41, these paragraph numbers are retained in Ind AS 41. [F. No. 01/01/2009-CL-V-(Part VII)] (K.V.R. MURTY) Joint Secretary Note : The principal rules were published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), dated the 16th February, 2015 vide number G.S.R. 111(E) dated the 16th February, 2015 and were subsequently amended vide notifications number G.S.R. 365 (E), dated the 30th March, 2016 , number G.S.R. 258(E), dated the 17th March, 2017 and number G.S.R. 310(E), dated the 28th March, 2018 and G.S.R. 903(E), ..... X X X X Extracts X X X X X X X X Extracts X X X X
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