AS 19-Is Rent equalization reserve creation for office agreements is obligatory under AS 19 ?

Is Rent equalization reserve creation  for office agreements is obligatory under AS 19 ?

Replies (5)
Quick Summary
AS 19 does not mandate Rent Equalisation Reserve for office leases. It was an older practice to smooth lease expenses. AS 19 mainly deals with lease accounting and disclosure, not compulsory reserve creation. Hence it is not obligatory unless required by company policy or auditor view.

Follow provisions and this standard doesn't help reserves. Its all about outdated off balance sheet transactions, lease payments and maturity treatment. 

Rent Equalization reserve [Resolved] | Accounts (caclubindia.com)

For example, assume that retrospective application of Ind AS 116 results in the entity recognising a lease liability of Rs 100 and right‑of‑use asset of Rs 85 in respect of a lease as at the beginning of the preceding period, i.e., 1 April 2018. Assume further that the entity’s balance sheet as at 31 March 2018 has a ‘rent equalisation reserve’ of Rs 10 in respect of the lease. In such a case, it would give effect to the transition as of 1 April 2018 as follows.
 

Right‑of‑use – Dr 85

Rent Equalisation Reserve – Dr 10

Retained Earnings (or other component of equity) – Dr 5

Lease Liability – Cr 100

 

Thanks.

Ind AS is not applicable to the company . Auditors referring to AS 19 requirements for creation of  Lease Equalization reserve. If AS 19 applies is it necessary as per standard  to create a Lease Equalization reserve for offices taken on lease for a period of more than one year. 

It is deductible as per supreme court order in 2018. More info available in PWC papers 

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