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IND AS 116 Leases

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SATISH

23 Points Posted on 12 July 2021

hi to all, i have a company, which main activity is coal mining.Entity had hired a machine,which was specifically designed for this company only, for the coal crushing. the consideration was based on the per ton of coal crushed during the month, which has contingency but the average tons crushed per annum was given at 10lacs tons. the obligation was not compulsory to met for consideration. there is no minimum fixed consideration in this contract, if machine has not done any work during a month. in this context, can i consider this as a lease under IND AS 116? if it so, what is my fixed payment to that machine?

Replies (4)

Quick Summary

This discussion explores whether a coal mining company's contract for a specifically designed crushing machine, with payment based on tonnage crushed, qualifies as a lease under IND AS 116. Key considerations include the absence of a minimum fixed payment and how to determine the lease asset's value when payments are variable and contingent. Advice is offered on calculating the present value of minimum lease payments using market borrowing rates for accurate accounting.

yasaswi gomes

My grammar is 💯 good I

5110 Points Posted on 12 July 2021

Period of use= aggregate of consecutive days. This way, you will need to charge depreciation expense not for the period of use and don’t depreciate the asset when idle.

So no. of days RTU Asset used=Two fifty days or 8 months

monthly crushing capacity= Hundred

Per tonne crushed cost= Hundred

so total contract price = Eighty thousand

depreciation must be SLM.

yasaswi gomes

My grammar is 💯 good I

5110 Points Posted on 12 July 2021

Forgot to mention, if the lease is for ten years, contract price= 80,000*10* PV minimum lease payments

yasaswi gomes

My grammar is 💯 good I

5110 Points Posted on 12 July 2021

I mean discount factor for PV of minimum lease payments

yasaswi gomes

My grammar is 💯 good I

5110 Points Posted on 12 July 2021

Sry been busy, now to find the implicit rate

Market borrowing rate= 10% use this as the discount factor and discount it with annual cash outflows n 80,000₹. Then add all the PV and it becomes your asset value. This is rough work and hope you got it