Ind AS 116 - The biggest change (w.e.f. 1.4.2019):
If the lease was classified as operating, then the lessees did not show neither asset nor liability in their balance sheets – just the lease payments as an expense in profit or loss. This liability was hidden from the readers of the financial statements, as it was not presented anywhere. Though, some disclosures in the notes to the financial statements were mandatory, but frankly – who, except for auditors, analysts and the like ever reads the notes to the financial statements !!
New Ind AS 116 removes this discrepancy and puts most leases on balance sheet.
Lessees (those who take an asset under lease) do not need to classify the lease at its inception and determine whether it’s finance or operating.
The reason is that Ind AS 116 prescribes a single model of accounting for every lease for the lessees. Very shortly:
1. Lessee needs to recognize a right-of-use asset and corresponding liability in its statement of financial position.
2. An asset shall be depreciated and a liability amortized over the lease term.
This model is very similar to the accounting for finance leases under IAS 17.
Thank you, but in case of operating lease how the amortisation will be accounted if the term of lease is say less than 1year?with a discount rate of 10%
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