Page 3 - 6. COMPILER QB - INDAS 116

The impact of the lease on the financial statements for the year ended 31st March, 2018 can best be seen by

preparing a profile of the net investment in the lease for the first three years of the lease and shown below:
Year Ending Opening Rental Finance Rental Closing
Balance income Balance

2017 20,197.39 (2,787) 1392.831 18803.22
2018 18803.22 (2,787) 1281.298 17297.518

2019 17297.518 (2,787) 1160.84 15671.359
During the year ended 31st March, 2018, A Ltd. will recognise income from finance leases of 1,281.298
The net investment on 31st March, 2018 will be 17,297.518.

Of the closing net investment of 17,761.27, current asset will be shown for 2,787 and 14,510.518 as a non-
current asset.

Note: In Suggested Answer, rental is being assumed as paid at the end but in question it is clearly given that

it is being paid in advance

Q2 (Nov. 19)

Jeevan India Limited is in the business of development of smart city. For development of smart city, Jeevan
India Limited allots its land to customer on 99 years of lease. The customer is required to pay lease premium

at the time of execution of lease deed and lease rent on annual basis over a period of 99 years.

The lease premium amount is the market value of land and lease rent is nominal amount say Rs. 1 per square
metre per year. The lease premium is non-refundable. As per the lease terms, on completion of 99 years, the

lease is renewable at mutual consent of lessor and lessee.

How would income in respect of lease premium collected by Jeevan India Limited (which is the market value
of land and is not refundable) at the time of execution of lease deed be recognised as per Ind AS, if for

subsequent years, only nominal lease rent is collected.
SOLUTION

Paragraph 5 of Ind AS 115 scopes out revenue arising from lease agreements. Principles enunciated under Ind
AS 116, Leases would be applicable for revenue arising from leasing agreements.

Recognition of income in respect of lease would depend on its classification as per Ind AS 116, Leases.
(a) If the lease of land is an operating lease, then it will be accounted for as given below:
(i) Lessors shall present assets subject to operating leases in their balance sheet according to the nature
of the asset.

(ii) Lease income from operating leases shall be recognised in income on a straight- line basis over the
lease term, unless another systematic basis is more representative of the time pattern in which use
benefit derived from the leased asset is diminished, even if the payments to the lessors are not on
that basis;

(b) The long lease term may be an indication that the lease is classified as a finance lease. If it is a

6.2