Indian Administrative | Indian Standard 17 | Lessors | Lease | FAQs
Every organisation that engages in a leasing agreement must comply with the standards outlined in Ind AS 116.
Due to the significant impact, a lease agreement has on one’s finances, understanding the terms of such an arrangement is critical from both a legal and an economic vantage point. In April of 2019, the government of India replaced Indian Accounting Standards (Ind AS) 17 with Indian Accounting Standards (Ind-AS) 116 to modernise the regulations that regulate leasing contracts and expand upon the existing provisions of those standards.
Ind AS 116 was developed to provide the fundamental standards for lease recognition, measurement, presentation, and disclosure, with the end goal of providing transparent and honest financial statements of leasing transactions. This was accomplished by providing lease recognition, measurement, presentation, and disclosure standards.
As a result of Ind AS 116, which mainly impacts lessee accounting, all leases will be recognised on lessees’ balance sheets. This is one of the primary implications of the standard. Lessees are obligated to record all lease-related liabilities and assets following Ind AS 116, which provides a lessee accounting model. The only exception to this rule is if the asset in issue is of a very low value. Any person or company that signs a lease for more than a year must comply with the rules outlined in Ind AS 116. This applies to both residential and commercial leases.
Maintaining conformity with the Indian Administrative Standard 116
The Indian Administrative Standard (Ind AS) 116 governs leases, including subleases of assets with rights of use.
On the other hand, due to a variety of exclusions, the following contracts are not subject to the requirements of Ind AS 116:
- Mineral, petroleum, and gas extraction leases and use leases.
- Any service concession agreements fall within Ind AS 115 Appendix [D].
- Licenses for using a lessor’s intellectual property granted by a lessee and within the purview of Ind AS 115 may be considered compliant with this standard.
- Leases of a lessee’s biological assets comply with Ind AS 41 standard requirements.
- The rights to utilise recorded media, live performances, movies, books, scripts, copyrights and patents that have been licenced to the lessee are examples of intangible assets that the lessee may own.
What differentiates Indian Standard 17 from Indian Standard 116?
The Indian Accounting Standard 17 distinguishes between financial and operational leases when analysing their effects on an organization’s finances. The Indiana Administrative Code (Ind AS 116) does not make that distinction.
Lessees are held to stricter disclosure standards under Ind AS 116 than Ind AS 17 regulations. There is a possibility that the lessor and lessee may discover more detailed provisions for lease modification in Ind. AS 116 than they would in Ind. AS 17.
Lessors are also subject to more stringent reporting obligations under Ind AS 116 than under Ind AS 17, which is the previous standard.
According to Ind AS 116, almost all leases are now required to be recorded on the company’s balance sheet, and lessee accounting has been extensively modernised. As a direct consequence, the difference between financing leases and operating leases is rendered meaningless. Practically all lease agreements have a clause requiring the lessee to acknowledge the existence of an asset and a duty to fulfil a financial responsibility in the form of rent payment. Both short-term and low-value leases are eligible to opt-out of the requirement.
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Accounting performed by Lessors
Ind AS 116 standard does not materially modify lessor accounting, except for a few minor alterations in the definition of a lease.
Following the Indian Accounting Standard 116, a lease is defined as an agreement to govern the use of an asset for a certain amount of time in exchange for monetary compensation.
A new version of Ind AS 116 has been released due to the widespread Coronavirus infection. On July 24, 2020, the Companies (Indian Accounting Standards) Amendment Rules, 2020, were made available for public consumption by the Ministry of Corporate Affairs.
Alterations to the Indiana Administrative Code (Ind AS 116) have also been included in these regulations. ICAI, the governing organisation for chartered accountants, was modified in preparation for the COVID-19 pandemic. This was done so that renters wouldn’t have to include any rent decreases owing to the outbreak as a lease adjustment.
Following Indian Administrative Regulation 116, what exactly is a lease?
A lease is an arrangement in which one party, in return for money obtains the right to exert control over the ownership and use of an asset for a certain length of time. The party may exercise this control throughout the lease. Leases of up to 12 months considered short-term are exempt from the criterion.
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FAQs
Q: Is MCA familiar with the Indian Administrative Standards 116?
A: The Indian Accounting Standards 116 was presented to the public for the first time on March 30, 2019, by the Ministry of Corporate Affairs (MCA).
Q: How many AAOS are self-sufficient and run their operations?
39 Indian Accounting Standards have been published by the ICAI (Institute of Chartered Accountants of India).
Q: What is the current status of the International Accounting Standard 17?
In April of 2019, the government of India legally implemented Indian Accounting Standard 116, which meant that Indian Accounting Standard 17 had become obsolete.
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