08 June 2010
What will be the treatment of the leased land if we got it without consideration.
An Goverment Authority gave land to use it for 5 years but did not take any consideration, only lease rent of Rs.3 lacs per annum is to be given.
Now my question how to treat this land in the balance sheet, since AS 19 does not apply on leased land and without consideration we can not show it in the balance sheet.
Though AS 19 does not cover lease of land, we can take guidance from relevant IFRS. Corresponding IAS requires that lease of land is always to be classified as operating lease unless the land has finite useful life.
Thus, you should recognise total lease rent payable during the lease tenure on straight line basis i.e. charge Rs. 3 lacs to P & L Account every year. No disclosure to be made in Balance sheet in case of operating lease.
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