How to account for land taken on lease?

Since your the finance lease Lessor, derecognise the Asset first:

Lease receivables 

To Lease Asset 

when you received payments reduce receivables and:

Bank a/c 

To Lease income a/c

Since your the finance lease Lessor, derecognise the Asset first:

Lease receivables 

To Lease Asset 

when you received payments reduce receivables and:

Bank a/c 

To Lease income a/c

Hello, I am not the lessor, I am the lessee. 

My question is that, whether I have to record it as an expense or an asset.

If an expense, what amount in the three part of payment made (salami, rent and cess)?

If an asset, what amount?

According to the new leasing standards, you have to record it as a Right to use asset. You have to account for expenses like depreciation and maintenance as well. Finally, you have to account for lease liabilities as well.

Thanks for the reply.

I am paying Rs 1 crore at once for 30 years and no more payment will be made in this period.

The 1 crore includes, 60 lakhs (salami), 30 lakhs (rent for 30 years) and 10 lakhs (cess for 30 years).

So I have to record the total payment of 1 crore as an asset and account for yearly depreciation

OR

I have to record the 60 lakhs (salami) as an asset and the rest 40 lakhs (rent and cess) as an expense. In this case depreciation will be accounted on 60 lakhs only.

OR

I have to record 60 lakhs (salami) as a security deposit and the rest 40 lakhs as an expense.

What is salami called in terms of Indian Tax please? Cess is allowed for motor vehicles. Is it allowed for leasing land as well?

I am not really sure about the cess but salami is a sort of security deposit but it has no mention of being returnable. If you can read Hindi, I can send you the document.

Hi Mr Aniket, this security deposit does not meet the criteria of lease contract. You have to give it a normal treatment. As per non refundable deposit, add it to current lease liabilities. When you pay the lease rental, record rental expense and expense non refundable deposit. This is a different treatment. The issue here is there is no valid evidence that revised IndAS 116 is working out this way. So check out the Mca.gov.in for further updates because the deposits future realisable value is discounted. 

Oops I was preoccupied and suggested an err..as for non refundable deposit, treat it like a one time expense and expense it off. No need to include it in liabilities.

So, we may let aside the cess part for now.

Now, I have to just expense off the 60 and 30 lakh, right?

And why will it not be an RTU (which you had suggested earlier). What criteria defines if a lease is to be accounted as an asset or an expense?

Hey Yasaswi, can you please clear it for me in simple terms. I am in a trouble.

https://www.caclubindia.com/articles/impact-of-lease-rentals-and-interest-free-deposits-under-ind-as-116-40629.asp

Hi Aniket, I finally sorted it my difficulties in leading in IndAS and thought that maybe you’d like the transaction entries

In the books of lessee: Initial recognition 

RTA Asset a/c

Advance (added into RTA)

(-)Lease incentives (added into RTA)

Others (added into RTA)

To Lease liability

depreciation in the books of lessee:

Depreciation a/c

To Accumulated Depreciation a/c

Interest added subsequently to lease liability:

Interest a/c

To Lease liability a/c

Any decrease in lease liability:

Lease liability a/c

To Bank a/c

Note: Don't forget to reduce lease incentives