Operating lease

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Querist : Anonymous

Querist : Anonymous (Querist)

23 May 2018 We have lease agreement with Landlord from Jan 2016 to Dec 2020 having rent of 192,000 from Jan 16 to Dec 16 then 202,000 from Jan 17 to Dec 17 then 212,000 from Jan 18 to Dec 18 then 222,000 from Jan 19 to Dec 19 then 232,000 from Jan 20 to Dec 20.
Total Rent payable for 60 months is Rs.1,27,20,000/-
Average monthly rent is Rs.212,000/-
In F.Y.16-17, Rent equalization reserve was created of Rs.210,000/-
So my question is do i need to create this reserve every year and what is the purpose of creating as i am not giving any advance to lessor i am making monthly payment.
If i have to create reserve this year then will it be Rs.90,000 reserve.
Please let me know wehther it is correct and what accounting entry will i pass .

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

23 May 2018 No need of any creation of such reserve. Whatever lease rent payable for each year is to be charged as expenses. Higher lease rent is charged for later years to counter inflation by the land lord.

Querist : Anonymous

Querist : Anonymous (Querist)

15 June 2018 Thanks for solving my query

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