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Leases

ting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles) Objective__________________________________________________________________ 1 This Standard sets out the principles for the recognition, measurement, presentation and disclosure of . The objective is to ensure that lessees and lessors provide relevant information in a manner that faithfully represents those transactions. This information gives a basis for users of financial statements to assess the effect that have on the financial position, financial performance and cash flows of an entity. 2 An entity shall consider the terms and conditions of contracts and all relevant facts and circumstances when applying this Standard. An entity shall apply this Standard consistently to contracts with similar characteristics and in similar circumstances. Scope______________________________________________________________________ 3 An entity shall apply this Standard to all , including of right-of-use assets in a sublease, except for: (a) to explore for or use minerals, oil, natural gas and similar non-regenerative resources; (b) of biological asse .....

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graphs B9-B31 set out guidance on the assessment of whether a contract is, or contains, a lease. 10 A period of time may be described in terms of the amount of use of an identified asset (for example, the number of production units that an item of equipment will be used to produce). 11 An entity shall reassess whether a contract is, or contains, a lease only if the terms and conditions of the contract are changed. Separating components of a contract 12 For a contract that is, or contains, a lease, an entity shall account for each lease component within the contract as a lease separately from non-lease components of the contract, unless the entity applies the practical expedient in paragraph 15. Paragraphs B32-B33 set out guidance on separating components of a contract. Lessee 13 For a contract that contains a lease component and one or more additional lease or non-lease components, a lessee shall allocate the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components. 14 The relative stand-alone price of lease and non-lease components shall be determined .....

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aragraph B41). 21 An entity shall revise the lease term if there is a change in the non-cancellable period of a lease. For example, the non-cancellable period of a lease will change if: (a) the lessee exercises an option not previously included in the entity s determination of the lease term; (b) the lessee does not exercise an option previously included in the entity s determination of the lease term; (c) an event occurs that contractually obliges the lessee to exercise an option not previously included in the entity s determination of the lease term; or (d) an event occurs that contractually prohibits the lessee from exercising an option previously included in the entity s determination of the lease term. Lessee_____________________________________________________________________ Recognition 22 At the commencement date, a lessee shall recognise a right-of-use asset and a lease liability. Measurement Initial measurement Initial measurement of the right-of-use asset 23 At the commencement date, a lessee shall measure the right-of-use asset at cost. 24 The cost of the right-of-use asset shall comprise: (a) the amount of the initial measurement of the lease liability, as described in .....

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ts of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease. 28 Variable lease payments that depend on an index or a rate described in paragraph 27(b) include, for example, payments linked to a consumer price index, payments linked to a benchmark interest rate (such as LIBOR) or payments that vary to reflect changes in market rental rates. Subsequent measurement Subsequent measurement of the right-of-use asset 29 After the commencement date, a lessee shall measure the right-of-use asset applying a cost model, unless it applies the measurement model described in paragraph 35. Cost model 30 To apply a cost model, a lessee shall measure the right-of-use asset at cost: (a) less any accumulated depreciation and any accumulated impairment losses; and (b) adjusted for any remeasurement of the lease liability specified in paragraph 36(c). 31 A lessee shall apply the depreciation requirements in Ind AS 16, Property, Plant and Equipment, in depreciating the right-of-use asset, subject to the requirements in paragraph 32. 32 If the lease transfers ownership of the underlying asset to the lessee by the end of the lease term or if .....

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lease liability as an adjustment to the right-of-use asset. However, if the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, a lessee shall recognise any remaining amount of the remeasurement in profit or loss. 40 A lessee shall remeasure the lease liability by discounting the revised lease payments using a revised discount rate, if either: (a) there is a change in the lease term, as described in paragraphs 20-21. A lessee shall determine the revised lease payments on the basis of the revised lease term; or (b) there is a change in the assessment of an option to purchase the underlying asset, assessed considering the events and circumstances described in paragraphs 20-21 in the context of a purchase option. A lessee shall determine the revised lease payments to reflect the change in amounts payable under the purchase option. 41 In applying paragraph 40, a lessee shall determine the revised discount rate as the interest rate implicit in the lease for the remainder of the lease term, if that rate can be readily determined, or the lessee s incremental borrowing rate at the date of reassessment, if .....

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eadily determined. 46 For a lease modification that is not accounted for as a separate lease, the lessee shall account for the remeasurement of the lease liability by: (a) decreasing the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease for lease modifications that decrease the scope of the lease. The lessee shall recognise in profit or loss any gain or loss relating to the partial or full termination of the lease. (b) making a corresponding adjustment to the right-of-use asset for all other lease modifications. Presentation 47 A lessee shall either present in the balance sheet, or disclose in the notes: (a) right-of-use assets separately from other assets. If a lessee does not present right-of-use assets separately in the balance sheet, the lessee shall: (i) include right-of-use assets within the same line item as that within which the corresponding underlying assets would be presented if they were owned; and (ii) disclose which line items in the balance sheet include those right-of-use assets. (b) lease liabilities separately from other liabilities. If a lessee does not present lease liabilities separately in the balance sheet, the .....

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w-value assets accounted for applying paragraph 6. This expense shall not include the expense relating to short-term of low-value assets included in paragraph 53(c); (e) the expense relating to variable lease payments not included in the measurement of lease liabilities; (f) income from subleasing right-of-use assets; (g) total cash outflow for ; (h) additions to right-of-use assets; (i) gains or losses arising from sale and leaseback transactions; and (j) the carrying amount of right-of-use assets at the end of the reporting period by class of underlying asset. 54 A lessee shall provide the disclosures specified in paragraph 53 in a tabular format, unless another format is more appropriate. The amounts disclosed shall include costs that a lessee has included in the carrying amount of another asset during the reporting period. 55 A lessee shall disclose the amount of its lease commitments for short-term accounted for applying paragraph 6 if the portfolio of short-term to which it is committed at the end of the reporting period is dissimilar to the portfolio of short-term to which the short-term lease expense disclosed applying paragraph 53(c) relates. 56 If right-of-use assets meet .....

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t. Examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease are: (a) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term; (b) the lessee has the option to purchase the underlying asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception date, that the option will be exercised; (c) the lease term is for the major part of the economic life of the underlying asset even if title is not transferred; (d) at the inception date, the present value of the lease payments amounts to at least substantially all of the fair value of the underlying asset; and (e) the underlying asset is of such a specialised nature that only the lessee can use it without major modifications. 64 Indicators of situations that individually or in combination could also lead to a lease being classified as a finance lease are: (a) if the lessee can cancel the lease, the lessor s losses associated with the cancellation are borne by the lessee; (b) gains or losses from the fluctuation in the fair v .....

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70 At the commencement date, the lease payments included in the measurement of the net investment in the lease comprise the following payments for the right to use the underlying asset during the lease term that are not received at the commencement date: (a) fixed payments (including in-substance fixed payments as described in paragraph B42), less any lease incentives payable; (b) variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; (c) any residual value guarantees provided to the lessor by the lessee, a party related to the lessee or a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee; (d) the exercise price of a purchase option if the lessee is reasonably certain to exercise that option (assessed considering the factors described in paragraph B37); and (e) payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease. Manufacturer or dealer lessors 71 At the commencement date, a manufacturer or dealer lessor shall recognise the following for each of its finance : (a) rev .....

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unearned finance income. 77 A lessor shall apply the derecognition and impairment requirements in Ind AS 109 to the net investment in the lease. A lessor shall review regularly estimated unguaranteed residual values used in computing the gross investment in the lease. If there has been a reduction in the estimated unguaranteed residual value, the lessor shall revise the income allocation over the lease term and recognise immediately any reduction in respect of amounts accrued. 78 A lessor that classifies an asset under a finance lease as held for sale (or includes it in a disposal group that is classified as held for sale) applying Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations, shall account for the asset in accordance with that Standard. Lease modifications 79 A lessor shall account for a modification to a finance lease 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 .....

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disclose information in the notes that, together with the information provided in the balance sheet, statement of profit or loss and statement of cash flows, gives a basis for users of financial statements to assess the effect that have on the financial position, financial performance and cash flows of the lessor. Paragraphs 90-97 specify requirements on how to meet this objective. 90 A lessor shall disclose the following amounts for the reporting period: (a) for finance : (i) selling profit or loss; (ii) finance income on the net investment in the lease; and (iii) income relating to variable lease payments not included in the measurement of the net investment in the lease. (b) for operating , lease income, separately disclosing income relating to variable lease payments that do not depend on an index or a rate. 91 A lessor shall provide the disclosures specified in paragraph 90 in a tabular format, unless another format is more appropriate. 92 A lessor shall disclose additional qualitative and quantitative information about its leasing activities necessary to meet the disclosure objective in paragraph 89. This additional information includes, but is not limited to, information tha .....

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ontract and the lease applying paragraphs 99-103. Assessing whether the transfer of the asset is a sale 99 An entity shall apply the requirements for determining when a performance obligation is satisfied in Ind AS 115 to determine whether the transfer of an asset is accounted for as a sale of that asset. Transfer of the asset is a sale 100 If the transfer of an asset by the seller-lessee satisfies the requirements of Ind AS 115 to be accounted for as a sale of the asset: (a) the seller-lessee shall measure the right-of-use asset arising from the leaseback at the proportion of the previous carrying amount of the asset that relates to the right of use retained by the seller-lessee. Accordingly, the seller-lessee shall recognise only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor. (b) the buyer-lessor shall account for the purchase of the asset applying applicable Standards, and for the lease applying the lessor accounting requirements in this Standard. 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 .....

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nce lease; and (b) any unguaranteed residual value accruing to the lessor. inception date of the lease (inception date) The earlier of the date of a lease agreement and the date of commitment by the parties to the principal terms and conditions of the lease. initial direct costs Incremental costs of obtaining a lease that would not have been incurred if the lease had not been obtained, except for such costs incurred by a manufacturer or dealer lessor in connection with a finance lease. interest rate implicit in the lease 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 condition .....

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transfer substantially 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 A transaction for which an underlying asset is re-leased by a lessee ( intermediate lessor ) to a third party, and the lease( head lease ) between the head lessor and lessee remains in effect. underlying asset An asset that is the subject of a lease, .....

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e 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: 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 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 of the asset being leased. B4 The assessment of whether an underlying asset is of low value is performed on an absolute basis. of low-value assets qualify for the accounting treatment in paragraph 6 regardless of whether those are material to the lessee. The assessment is not affected by the size, nature or circumstances of the lessee. Accordingly, different lessees are expected to reach the same conclusions about whether a particular underlying asset is of low value. B5 An underlying asset can be of low value only if: (a) the lessee can benefit from use of the underlying asset on its own or together with other resources that are readily avai .....

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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 the supplier within a reasonable period of time); and (b) the supplier would benefit economically from the exercise of its right to substitute the asset (ie the economic benefits associated with substituting the asset are expected to exceed the costs associated with substituting the asset). B15 If the supplier has a right or an obligation to substitute the asset only on or after either a particular date or the occurrence of a specified event, the supplier s substitution right is not substantive because the supplier does not have the practical ability to substitute alternative assets throughout the period of use. B16 An entity s evaluation of whether a supplier s substitution right is substantive is based on facts and circumstances at inc .....

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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 obtain substantially all of the economic benefits from use of an asset, an entity shall consider the economic benefits that result from use of the asset within the defined scope of a customer s right to use the asset (see paragraph B30). For example: (a) if a contract limits the use of a motor vehicle to only one particular territory during the period of use, an entity shall consider only the economic benefits from use of the motor vehicle within that territory, and not beyond. (b) if a contract specifies that a customer can drive a motor vehicle only up to a particular number of miles during the period of use, an entity shall consider only the economic benefits from use of the motor vehicle for the permitted mileage, and not beyond. B23 If a contract requires a customer to pay the supplie .....

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nces, 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 space); (b) rights to change when the output is produced (for example, to decide when an item of machinery or a power plant will be used); (c) rights to change where the output is produced (for example, to decide upon the destination of a truck or a ship, or to decide where an item of equipment is used); and (d) rights to change whether the output is produced, and the quantity of that output (for example, to decide whether to produce energy from a power plant and how much energy to produce from that power plant). B27 Examples of decision-making rights that do not grant the right to change how and for what purpose the asset is used include rights that are limited to operating or maintaining the asset. Such rights can be held by the customer or the supplier. Although rights such as those to operate or maintain an asset are often .....

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he 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 that are readily available to the lessee. Readily available resources are goods or services that are sold or leased separately (by the lessor or other suppliers) or resources that the lessee has already obtained (from the lessor or from other transactions or events); and (b) the underlying asset is neither highly dependent on, nor highly interrelated with, the other underlying assets in the contract. For example, the fact that a lessee could decide not to lease the underlying asset without significantly affecting its rights to use other underlying assets in the contract might indicate that the underlying asset is not highly dependent on, or highly interrelated with, those other underlying assets. B33 A contract may include an amount payable by the lessee for activities and costs that do not transfer a good or service to the lessee. For example, a lessor may include in the total a .....

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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 underlying asset, becomes exercisable; (c) costs relating to the termination of the lease, such as negotiation costs, relocation costs, costs of identifying another underlying asset suitable for the lessee s needs, costs of integrating a new asset into the lessee s operations, or termination penalties and similar costs, including costs associated with returning the underlying asset in a contractually specified condition or to a contractually specified location; (d) the importance of that underlying asset to the lessee s operations, considering, for example, whether the underlying asset is a specialised asset, the location of the underlying asset and the availability of suitable alternatives; and (e) conditionality associated with exercising the option (ie when the option can be exercised only if one or more conditions are met), and the likelihood that those conditions will exist. B38 An option to extend or terminat .....

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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 relevant to exercising, or not exercising, an option (for example, a decision to extend the lease of a complementary asset, to dispose of an alternative asset or to dispose of a business unit within which the right-of-use asset is employed). In-substance fixed lease payments (paragraphs 27(a), 36(c) and 70(a)) B42 Lease payments include any in-substance fixed lease payments. In-substance fixed lease payments are payments that may, in form, contain variability but that, in substance, are unavoidable. In-substance fixed lease payments exist, for example, if: (a) payments are structured as variable lease payments, but there is no genuine variability in those payments. Those payments contain variable clauses that do not have real economic substance. Examples of those types of payments include: (i) payments that must be made only if an asset is proven to be capable of operating during the lease, or only if an event occurs that has no genuine possibility of not occurri .....

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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 asset from the manufacturer by the lessor, which is in turn leased to the lessee. The lessee may obtain legal title to the underlying asset before legal title transfers to the lessor. In this case, if the lessee obtains legal title to the underlying asset but does not obtain control of the asset before it is transferred to the lessor, the transaction is not accounted for as a sale and leaseback transaction, but as a lease. Lessee disclosures (paragraph 59) B48 In determining whether additional information about leasing activities is necessary to meet the disclosure objective in paragraph 51, a lessee shall consider: (a) whether that information is relevant to users of financial statements. A lessee shall provide additional information specified in paragraph 59 only if that information is expected to be relevant to users of financial statements. In this context, this is likely to be the case if it helps those users to understand: (i) the flexibility provided by . may provide flexibility if, for example, a lessee can reduce .....

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ns for providing residual value guarantees and the prevalence of those guarantees; (b) the magnitude of a lessee s exposure to residual value risk; (c) the nature of underlying assets for which those guarantees are provided; and (d) other operational and financial effects of those guarantees. B52 Additional information relating to sale and leaseback transactions 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 sale and leaseback transactions and the prevalence of those transactions; (b) key terms and conditions of individual sale and leaseback transactions; (c) payments not included in the measurement of lease liabilities; and (d) the cash flow effect of sale and leaseback transactions in the reporting period. Lessor lease classification (paragraphs 61-66) B53 The classification of for lessors in this Standard is based on the extent to which the lease transfers the risks and rewards incidental to ownership of an underlying asset. Risks include the possibilities of losses from idle capacity or technological obs .....

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lease shall be classified as an operating lease. (b) otherwise, the sublease shall be classified by reference to the right-of-use asset arising from the head lease, rather than by reference to the underlying asset (for example, the item of property, plant or equipment that is the subject of the lease). Appendix C Effective date and transition This appendix is an integral part of the Standard and has the same authority as the other parts of the Standard. Effective date_______________________________________________________________ C1 An entity shall apply this Standard for annual reporting periods beginning on or after 1st April, 2019. Transition__________________________________________________________________ C2 For the purposes of the requirements in paragraphs C1-C19, the date of initial application is the beginning of the annual reporting period in which an entity first applies this Standard. Definition of a lease C3 As a practical expedient, an entity is not required to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, the entity is permitted: (a) to apply this Standard to contracts that were previously identified as applying Ind .....

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hat lease recognised in the balance sheet immediately before the date of initial application. (d) apply Ind AS 36, Impairment of Assets, to right-of-use assets at the date of initial application, unless the lessee applies the practical expedient in paragraph C10(b). C9 Notwithstanding the requirements in paragraph C8, for previously classified as operating applying Ind AS 17, a lessee: (a) is not required to make any adjustments on transition for for which the underlying asset is of low value (as described in paragraphs B3-B8) that will be accounted for applying paragraph 6. The lessee shall account for those applying this Standard from the date of initial application. (b) [Refer Appendix 1]. (c) [Refer Appendix 1]. C10 A lessee may use one or more of the following practical expedients when applying this Standard retrospectively in accordance with paragraph C5(b) to previously classified as operating applying Ind AS 17. A lessee is permitted to apply these practical expedients on a lease-by-lease basis: (a) a lessee may apply a single discount rate to a portfolio of with reasonably similar characteristics (such as with a similar remaining lease term for a similar class of underlyin .....

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s disclosed applying Ind AS 17 at the end of the annual reporting period immediately preceding the date of initial application, discounted using the incremental borrowing rate at the date of initial application as described in paragraph C8(a); and (ii) lease liabilities recognised in the balance sheet at the date of initial application. C13 If a lessee uses one or more of the specified practical expedients in paragraph C10, it shall disclose that fact. Lessors C14 Except as described in paragraph C15, a lessor is not required to make any adjustments on transition for in which it is a lessor and shall account for those applying this Standard from the date of initial application. C15 An intermediate lessor shall: (a) reassess sub that were classified as operating applying Ind AS 17 and are ongoing at the date of initial application, to determine whether each sublease should be classified as an operating lease or a finance lease applying this Standard. The intermediate lessor shall perform this assessment at the date of initial application on the basis of the remaining contractual terms and conditions of the head lease and sublease at that date. (b) for sub that were classified as ope .....

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, it shall apply that fair value model to the right-of-use assets that meet the definition of investment property. Since Ind AS 40, Investment Property, does not allow the use of fair value model, paragraph 34 has been deleted in Ind AS 116. Accordingly, reference to paragraph 34 has been deleted in paragraph 29. Paragraph C9(b) and paragraph C9(c) of Appendix C, Effective Date and Transition, given in context of fair value model of investment property have been deleted. However, paragraph numbers have been retained in Ind AS 116 to maintain consistency with paragraph numbers of IFRS 16. 2. Paragraph 50(b) of IFRS 16 requires to classify cash payments for interest portion of lease liability applying requirements of IAS 7, Statement of Cash Flows. IAS 7 provides option of treating interest paid as operating or financing activity. However, Ind AS 7 requires interest paid to be treated as financing activity only. Accordingly, paragraph 50(b) has been modified in Ind AS 116 to specify that cash payments for interest portion of lease liability will be classified as financing activities applying Ind AS 7. 3. Different terminology is used in this standard, eg, the term balance sheet is us .....

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