Ind as 116

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60 Points Posted on 26 May 2020
there is a lease for 5 years

lessee has the option for cancellation of the same

however lessee intention is use it for 5 years and not to cancel it before that

whether this cancelable lease will be a short term or long term
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On 26 May 2020 at 11:43 Report
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This discussion clarifies whether a 5-year lease with a lessee's option to cancel, but with no intention to do so, is considered short-term or long-term under Ind AS 116. While leases shorter than 12 months without an extension option might be treated differently, a lease with a 5-year term, even if cancellable by the lessee, is generally recognised as a lease contract. If the lessee intends to use the asset for the full term, it should be classified as a long-term lease, requiring the recognition of a lease liability and right-to-use asset.

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My grammar is 💯 good I
7306 Points Posted on 26 May 2020

I could not find the standard, but from IndAS 17, an operating lease is short term and finance leases are for long term. Then, I checked IFRS 16 which is similar to INDAS 116, and it mentions that any lease agreement which is lesser than 12 months, and no intention to extend will not recognise an asset and it’s treatment is different. Only short term leases with an intention to extend contract period are classified as leases. 

To answer your query, from the above, short term and long term lease contracts which has an option (will be exercised) to extend or not to terminate contract is recognised as a lease contract. To be more precise, cancellable lease is not a lease or long term; non cancellable leases with a mind to further extend the contract or not to terminate is a Lease. Any lease contract which has purchase option is not a short term lease, but long term lease. 

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On 26 May 2020 at 12:41
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30 Points Posted on 29 May 2020
Plz check whether lessor also has lock in or not. if lessor can cancel at any point of time, then its short term lease. if leassor also locked for the tenure, then that tenur will be considered and will be assessed for 116 if lock in is more than 12 months
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On 29 May 2020 at 03:16
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My grammar is 💯 good I
7306 Points Posted on 29 May 2020
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On 29 May 2020 at 08:51
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My grammar is 💯 good I
7306 Points Posted on 29 May 2020

The funny thing is MCA did not publish any information. What ever the assumption are, they are unreliable. 

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On 29 May 2020 at 09:05
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64 Points Posted on 03 June 2020
As per IndAs116 if lessee has intention to use it for 5 years it should record it as long term lease recording the lease liability and Right to use asset
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On 03 June 2020 at 18:00
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My grammar is 💯 good I
7306 Points Posted on 03 June 2020

@ Rohit Agarwal

Thank you. I forgot addressing that point.

I just prolonged the answer for the sake of understanding. 

 

 

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On 03 June 2020 at 18:55

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