LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Leasehold land treatment

24 August 2020

Leasehold land is acquired at Rs 3500000( premium paid ) for 99 years. and Rs 65000 + Rs 85000 is paid annually as lease rentals.

Please suggest the accounting treatment, How Rs 3500000 will be charged to P/L account ? and At what price it will be recorded.

T/o of the company is Rs634 crores. Please help.

Reply
Follow
Share

6 Replies

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 25 August 2020

IndAS 116 recognises all the amounts either at fair value or PV’s, which ever is lower on the balance sheet on the commencement date of the lease. After commencement, lease interest payments at borrowing cost or implicit rate are adjusted to the lease liability and expensed to profit and losses when they are cleared, or could be accruals probably. Depreciation is taken to profit and loss as well which is not required for land. This site offers a very good insight into IndAS 116, IndAS 17 and IFRS 16 differences:

https://vinodkothari.com/2017/09/faqs-on-ind-as-116-the-new-lease-accounting-standard/

Mayank Dhingra (9 Points)
Replied 28 August 2020

Thankyou so much for your reply. Help me with one more thing, Please tell what will be its impact in income tax , when the initial premium will be written off in books?

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 28 August 2020

Did you mean advance on lease? It is added to the RTU asset including direct costs less incentives.

RTU Asset a/c

Direct costs a/c Asset

Advance a/c Asset

To Incentives a/c Asset

To Lease liability a/c Liability

this is in the books of lessee.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 28 August 2020

The subsequent measurement for land is either at revaluation model (under PPE), or fair value model (for investment property). The RTU Asset is depreciated in the subsequent years, not the land itself.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 28 August 2020

G‘The standard IndAS 40, applies for measurement in a lessee financials statement of investment property under finance lessee and also measurement in the lessor’s Financials statements of investment property leased out under an operating lease.’ Sorry, I mean this.

The IndAS website is not opening, otherwise, all resources are useful. Try it from your end.