{"id":64,"date":"2019-05-03T05:09:56","date_gmt":"2019-05-03T05:09:56","guid":{"rendered":"http:\/\/akgvg.com\/blog\/?p=64"},"modified":"2026-03-06T11:10:37","modified_gmt":"2026-03-06T05:40:37","slug":"the-new-lease-model-ind-as-116","status":"publish","type":"post","link":"https:\/\/www.akgvg.com\/blog\/the-new-lease-model-ind-as-116\/","title":{"rendered":"The New Lease Model (IND AS 116)"},"content":{"rendered":"<p style=\"text-align: justify;\">Under the existing rules\u00a0<strong>as per IND AS 17 (Lease)<\/strong>, lessees account for leases either <strong>as operating leases or as finance leases<\/strong>, depending on complex rules and tests. These, in practice, use \u2018bright-lines\u2019 resulting in <strong>all or nothing<\/strong> being <strong>recognized on-balance sheet<\/strong> for lease transactions that are sometimes economically similar.<\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_81 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.akgvg.com\/blog\/the-new-lease-model-ind-as-116\/#New_rules_as_per_IND_AS_116\" >New rules as per IND AS 116<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.akgvg.com\/blog\/the-new-lease-model-ind-as-116\/#Effective_date\" >Effective date<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.akgvg.com\/blog\/the-new-lease-model-ind-as-116\/#Exemptions\" >Exemptions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.akgvg.com\/blog\/the-new-lease-model-ind-as-116\/#Treatment_in_books_of_accounts\" >Treatment in books of accounts<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"New_rules_as_per_IND_AS_116\"><\/span><strong>New rules as per IND AS 116<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p style=\"text-align: justify;\">While for the new lease model, The Institute of Chartered Accountants of India (ICAI) has issued an \u2018Exposure Draft\u2019 on <strong>Ind AS 116,<\/strong> providing guidance on accounting for leases, which is largely converged with <strong>IFRS 16<\/strong>: Leases issued by the International Accounting Standards Board. The <strong>new standard<\/strong> requires lessees to recognize nearly <strong>all leases on their balance sheets<\/strong>, reflecting their right-to-use an asset for a period of time and the associated liability for payments. All <strong>lease liabilities<\/strong> are to be measured with reference to an <strong>estimate of the lease term<\/strong>, including certain optional lease periods.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Effective_date\"><\/span><strong>Effective date<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p style=\"text-align: justify;\">As per <strong>MCA Notification No. G.S.R. 273 (E) dated 30.03.2019<\/strong>, Companies (Indian Accounting Standards) Rules, 2015 have been amended on 30.03.2019, by inserting Ind AS 116: Leases which is corresponding to IFRS 16: Leases. This <strong>Ind AS 116 has replaced existing Ind AS 17: Leases, and<\/strong> accordingly single lease accounting model for lessee by eliminating the classification of leases as either operating leases or \u00a0finance leases. An entity shall apply this standard for annual reporting periods beginning on or after 1<sup>st<\/sup> April,2019.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Exemptions\"><\/span><strong>Exemptions<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p style=\"text-align: justify;\">There are optional exemptions for leases of terms <strong>less than 12 months<\/strong> and low-value assets. These do not have to be recognized on the balance sheet but can continue to be accounted as an operating lease similar to today.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Treatment_in_books_of_accounts\"><\/span><strong>Treatment in books of accounts<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p style=\"text-align: justify;\">The rent expense will be replaced by depreciation and interest expense in the income statement, similar to finance leases today. The lease liability is measured in subsequent periods using the effective interest rate method and the ROU asset is depreciated, done on a straight-line basis or another systematic basis, like other fixed assets today. The carrying amount of the ROU asset will, in general, be below the lease liability amount \u2013 resulting in the so-called effect of \u2018front loading\u2019 of lease expense, explained in the <strong>chart below<\/strong>. This might decrease earnings and equity immediately after entering a lease, compared to an operating lease today.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-65 size-full aligncenter\" src=\"http:\/\/akgvg.com\/blog\/wp-content\/uploads\/2019\/05\/WhatsApp-Image-2019-05-03-at-10.32.45-AM.jpeg\" alt=\"\" width=\"562\" height=\"124\" srcset=\"https:\/\/www.akgvg.com\/blog\/wp-content\/uploads\/2019\/05\/WhatsApp-Image-2019-05-03-at-10.32.45-AM.jpeg 562w, https:\/\/www.akgvg.com\/blog\/wp-content\/uploads\/2019\/05\/WhatsApp-Image-2019-05-03-at-10.32.45-AM-300x66.jpeg 300w\" sizes=\"auto, (max-width: 562px) 100vw, 562px\" \/><\/p>\n<p style=\"text-align: justify;\"><strong>\u201cThe new model will gross-up balance sheets, increase leverage, and change the income statement and cash-flow profile.\u201d Due to this reason, services of a professional like chartered accountant is to be availed. AKGVG &amp; Associates, being one of the <a href=\"https:\/\/www.akgvg.com\/ind-as-implementation\">Ind AS implementing firm in India<\/a>, can provide you with required advisory and ensure smooth transition of effects due to replacement of Ind AS 17 with Ind AS 116. <\/strong><\/p>\n<p style=\"text-align: justify;\"><strong>Disclaimer : <\/strong>This content is meant for information only and should not be considered as an advice or opinion, or otherwise. AKGVG &amp; Associates does not intend to advertise its services through this.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Under the existing rules\u00a0as per IND AS 17 (Lease), lessees account for leases either as operating leases or as finance leases, depending on complex rules and tests. These, in practice, use \u2018bright-lines\u2019 resulting in all or nothing being recognized on-balance sheet for lease transactions that are sometimes economically similar. New rules as per IND AS&#8230;<\/p>\n","protected":false},"author":1,"featured_media":6911,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10],"tags":[1924,343,1925,1922,1917,1918,1923,1921,1919,1920],"class_list":["post-64","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ind-as-applicability","tag-accounting-for-leases-india","tag-akgvg-associates","tag-financial-reporting-standards","tag-ind-as-116-india","tag-ind-as-116-lease-model","tag-ind-as-116-leases","tag-lease-accounting-standard","tag-lease-liability-accounting","tag-new-lease-accounting-model","tag-right-of-use-asset-ind-as-116"],"_links":{"self":[{"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/posts\/64","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/comments?post=64"}],"version-history":[{"count":4,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/posts\/64\/revisions"}],"predecessor-version":[{"id":6912,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/posts\/64\/revisions\/6912"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/media\/6911"}],"wp:attachment":[{"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/media?parent=64"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/categories?post=64"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/tags?post=64"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}