Substance over form

Reality vs. Legality

Reality -> what the transaction really is, actual thing

Legality -> legal form of the transaction

Sometimes, the transaction may look like lease but really it might be sale. The legal document may say lease deed of some 300 years, but it is as good as sale.

So, whenever there is confusion, AS-1 says that accounting will be done on the basis of reality of the transaction and not just on the legal basis, i.e. substance over legal form (reality over legal form)

Other example: purchase on installment/hire purchase.