Page 14 - 6. COMPILER QB - INDAS 116

1 Apr 20X3 1,60,127 1,78,589 - - -
31 Mar 20X4 - - 21,411 1,60,127 -
Ind AS 116 is applicable for the financial year beginning from 1st April, 20X3. Hence, 20X3-20X4 is the first year of

adoption and using Full retrospective method the comparative for 20 X2-20X3 needs to be restated and 1st April, 20X2
(i.e the opening of the comparative) is taken as transition date for adoption of this standard. At adoption, the lessee
would record the ROU asset and lease liability at the 1st April, 20X2 by taking values from the above table, with the
difference between the ROU asset and lease liability going to retained earnings as of 1st April, 20X2 (assuming that
only the 20X2-20X3 financial information is included as comparatives).
ROU Asset Dr. 3,20,254

Retained Earnings Dr. 17,772
To Lease Liability 3,38,026
To initially recognise the lease-related asset and liability as of 1 April 20X2.

The following journal entries would be recorded during 20X2-20X3:
Interest expense Dr. 40,563
To Lease Liability 40,563
To record interest expense and accrete the lease liability using the interest method.
Depreciation expense Dr. 1,60,127

To ROU Asset 1,60,127
To record depreciation expense on the ROU asset.
Lease Liability Dr. 2,00,000
To Cash 2,00,000
To record lease payment.

The following journal entries would be recorded during 20X3-20X4:
Interest expense Dr. 21,411
To Lease Liability 21,411
To record interest expense and accrete the lease liability using the interest method.
Depreciation expense Dr. 1,60,127
To ROU Asset 1,60,127
To record depreciation expense on the ROU asset.
Lease Liability Dr. 2,00,000
To Cash 2,00,000

To record lease payment.

Modified Retrospective Approach (When ROU asset is not equal to lease liability):
Under the modified retrospective approach (Alternative 1), the lease liability is measured based on the remaining lease
st
st
payments (i.e., from the date of transition to the lease end date, viz., 1 April, 20X3 to 31 March, 20X4 in this case)
st
discounted using the incremental borrowing rate as of the date of initial application being 1 April, 20X3 (i.e. 10% p.a.
in this case). The ROU asset is at its carrying amount as if Ind AS 116 had been applied since the commencement date
st
(i.e., 1 April 20X1 in this case) by using incremental borrowing rate as at transition date. The Lease Liability and ROU
Asset are as follows:

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