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Calculation of operating lease as per ind as 17

divya vijaykumar punjabi (article) (24 Points)

22 November 2016

It is given in ind as 17 that if payments to lessor are structured to increase in line with inflation , then not to straight line lease rental over the lease term .
My question is whether only escalation part not to be straight line or whole of lease rentals?
and if not to be straightlined then what method to be consider to charge lease rental to P/L in such case

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6 Replies

Sandeep Garg (Consolidation and IndAS Application) (1056 Points)
Replied 07 December 2016

If the increase in Lease rent is equivalent to inflation, them straight lining of whole lease rent is not required. Same treatment required as in IGAAP, no IndAS adjustment.

Thanks

Subhashini (Artcle Assistant) (23 Points)
Replied 12 February 2017

Hi all,

How do we determine if the rental escalation is in line with inflation.. Say, if the rent escalation is not annually and increse is every 36 months. Is there reference that can help determine this?

Thanks in advance

Sandeep Garg (Consolidation and IndAS Application) (1056 Points)
Replied 21 February 2017

Hi,

If the rental appreciation is once in three years lets say 10%. And for example inflation rate is 5 % p.a. , then for 3 years inflation becomes 15%.. So still the escalation is less than inflation so straight lining is not required.

In case any further clarification is required, pls lemme know.

Thanks

1 Like

Shailesh mishra (student) (27 Points)
Replied 24 April 2018

Thank you SIr

CA. Mayur (Service) (147 Points)
Replied 19 August 2018

One point should be noted here that standard does not say that escalation clause should be less than average inflation rate. Standard says the purpose of escalation is to meet inflation and hence the difference (postive or negative) between escalation and inflation rate should not be more. If the difference is not more then Lease rent will be recognised on accrual basis instead of straight line method. Further standard has not mentioned any quantitative threshold for this matter hence subjectivity involved in concluding