Page 13 - 6. COMPILER QB - INDAS 116

expedients are elected, the lessee did not incur initial direct costs, there were no lease incentives and there were

no requirements for the lessee to dismantle and remove the underlying asset, restore the site on which it is
located or restore the underlying asset to the condition under the terms and conditions of the lease.

What would be the impact for the lessee as per Ind AS 116 using the following transition approaches:
(i) Full Retrospective Approach
(ii) Modified Retrospective Approach (when ROU asset is not equal to lease liability)

Show the impact of adjustments through journal entries, consequent to transition for the year 20X2-20X3 and
20X3-20X4.
SOLUTION

Full Retrospective Approach:
Under the full retrospective approach, the lease liability and the ROU asset are measured on the commencement date

(i.e., 1st April, 20X1 in this case) using the incremental borrowing rate at lease commencement date (i.e., 12% p.a. in
this case). The lease liability is accounted for by the interest method subsequently and the ROU asset is subject to
depreciation on the straight-line basis over the lease term of three years. The Lease Liability and ROU Asset are as
follows:

Year Payments (Cash flows) Present Value Discounted Cash flows
Factor / Present
@ 12% Value

31 Mar 20X2 2,00,000 0.8929 1,78,580
31 Mar 20X3 2,00,000 0.7972 1,59,440
31 Mar 20X4 2,00,000 0.7118 1,42,360
6,00,000 4,80,380
Lease Liability Schedule:
Year Opening Interest Expense @ 12% Payments Closing
31 Mar 20X2 4,80,380 57,646 (2,00,000) 3,38,026
31 Mar 20X3 3,38,026 40,563 (2,00,000) 1,78,589
31 Mar 20X4 1,78,589 21,411* (2,00,000) -
*Difference is due to approximation

ROU Asset Schedule:
Year Opening Depreciation Closing
31 Mar 20X2 4,80,380 (1,60,126) 3,20,254
31 Mar 20X3 3,20,254 (1,60,127) 1,60,127
31 Mar 20X4 1,60,127 (1,60,127) -

The following table shows account balances under this method beginning at lease commencement:

Date ROU Asset Lease Interest Depreciation Retained Earnings
Liability Expense Expense
1 Apr 20X1 4,80,380 4,80,380 - - -
31 Mar 20X2 3,20,254 3,38,026 - - -
1 Apr 20X2 3,20,254 3,38,026 (17,772)
31 Mar 20X3 1,60,127 1,78,589 40,563 1,60,127 -

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