This is old standard

A. Following are the important points related with Accounting for finance leases

1. The lessee has to recognize lease as an asset &liability

2. Formula to recognize leased asset

Minimum of

a. Fair value of Asset

b. Present value of minimum lease payments @  interest rate implicit in the lease.

Minimum lease payments(MLP).

For Lessee=Total lease rent to be paid+any guaranteed residual value (by or on behalf of lessee) LESS contingent rent LESS cost or service and tax to be paid by and reimbursed to lessor.

3. Lease payment should be allocated between

a. Finance charges @ outstanding liability

b. Reduction of liability

4. The lessee in its books should charge depreciation on finance lease asset as per INDAS -16

5. Initial direct costs of the lessee are added to the amount recognized as an asset

in the books of lessor:

Recognises as receivables at amount equal to net investment

Net Investment = Present value of Gross Investment

Or Gross Investment – Un earned Finance income

Unearned Finance Income = Gross Investment-Present value of Gross Investment

Or

Gross Investment – Net Investment

Gross Investment = Minimum lease payment from lessor point of view + Unguaranteed residual value.

Minimum lease payments(MLP).

For Lessor=Total lease rent to be paid by the lease terms + any guaranteed residual value (by or on behalf of lessee) LESS contingent rent LESS cost for  service and tax to be paid by and reimbursed to lessor+residual value guaranteed by third party 

B. Recognise finance income based on patterns reflecting a constant period rate of return on lease

Journal entries in lesse books:

1. For recording the leased asset

Leased asset A/C Dr

To Lessor’s account

2. To record the initial direct cost 

Leased asset A/C Dr

To Bank A/C

3. To record the finance charges 

Finance Charges A/C Dr

To Lessor’s account.

4. For period instalment payment of lease

Lesser’s A/C Dr

To bank account

5. For recording depreciation of the leased asset

Depreciation a/c Dr

To Leased assets A/C.

6. To transfer finance charges and depreciation

Profit and loss account   Dr

To Finance charges a/c

To depreciation a/c

Journal ntries in the book of lessor:

To record Finnace lease on the date of inception

Lessee(Principal) A/C Dr

Lessee(interest) A/C Dr

To Asset A/C

  To Unearned Finance Income

Lease payment received

   Bank A/C Dr

        To X LtdA/C

To record Finance Income

     Unearned Finance Income A/C ..Dr

                To Finance Income

source: tax guru dot in

Yes Mr. Aniket

RTU Asset a/c

(minus lease incentives)

To Bank a/c

& depreciation entries.

Hi Mr. Aniket, there is no depreciation on land. So no need to pass them. Sry I forgot it is land. Let me check revaluation, yes, there is a classification. You have to use revaluation model for subsequent treatment to get the new carrying value.

Then you have to use the amortised cost model to remeasure the lease liabilities using the effective interest rate method.

Here, you don’t  have any subsequent lease liability, but if the carrying amount increases due to the fair value changes (revaluation model) then you might incur additional pv of minimum lease payments. 

I understood mca still did not update new standard IndAS 116 as we both discussed earlier. I used icai guidelines here: https://resource.cdn.icai.org/57963indas47262.pdf

you have differences between as19 and IndAS 116 and IFRS 16.

To conclude, you paid a core initially, which includes many other things

RTU Asset a/c 1,00,00,000

Bank a/c 1,00,00,000

then subsequent revaluation would be (1 crore+ 2 lakhs increase in fairvalue= 1,02,00,000). This gain is taken to revaluation surplus through OCI

Then, reassess your payments as you have remaining 29 years if your implicit rate of interest is 10% which is equal to discount factor as well

2,00,000  * 10% discount factor for year 1= ************ ₹

********** * 10% discount factor for Year 2= ************* ₹

etc.

so when ever you have increase in revaluation use 5-10 years amortisation period to clear out this small increase in fair value.

Do you have any idea if you will revalue the land at land value carrying value like 60 lakhs or gross carrying value 1 crore? This is an issue which is not clear in the guidelines. This is important because Plant and equipment had capitalised costs, when I want to revalue my machinery, should I do revaluation on just machinery or the gross amount? I know it doesn’t make such a big difference. 

I also think that you dont have to make any extra payments if your cntract states otherwise.

Hi Sir, I hope you found out lease revaluation by yourself from the above land revaluation after PV if minimum lease payments.