Page 5 - 6. COMPILER QB - INDAS 116

Year 3 1,02,000 .751 76,602
Year 4 1,02,000 .683 69,666

Year 5 1,02,000 .621 63,342
Year 6 1,02,000 .564 57,528
Year 7 1,02,000 .513 52,326
Year 8 1,02,000 .467 47,634
Year 9 1,02,000 .424 43,248
Lease Liability at commencement date 5,87,316

Further, Rs. 68,000 allocated to the non-lease component of facility used will be recognised in profit or loss

as and when incurred.

Q4 (May 21)

Entity X is an Indian entity whose functional currency is Indian Rupee. It has taken a plant on lease from
Entity Y for 5 years to use in its manufacturing process for which it has to pay annual rentals in arrears of
USD 10,000 every year. On the commencement date, exchange rate was USD = Rs.68. The average rate for
Year 1 was Rs. 69 and at the end of year 1, the exchange rate was Rs.70. The incremental borrowing rate of
Entity X on commencement of the lease for a USD borrowing was 5% p.a.

How will entity X measure the right of use (ROU) asset and lease liability initially and at the end of Year 1?
SOLUTION

On initial measurement, Entity X will measure the lease liability and ROU asset as under:
Year Lease Present Present Value Conversion rate INR value
Payments Value factor of Lease (spot rate)
(USD) @5% Payment

1 10,000 0.952 9,520 68 6,47,360
2 10,000 0.907 9,070 68 6,16,760
3 10,000 0.864 8,640 68 5,87,520

4 10,000 0.823 8,230 68 5,59,640
5 10,000 0.784 7,840 68 5,33,120
Total 43,300 29,44,400
As per Ind AS 21, The Effects of Changes in Foreign Exchange Rates, monetary assets and liabilities are

restated at each reporting date at the closing rate and the difference due to foreign exchange movement is
recognised in profit and loss whereas non-monetary assets and liabilities carried measured in terms of
historical cost in foreign currency are not restated.
Accordingly, the ROU asset in the given case being a non-monetary asset measured in terms of historical

cost in foreign currency will not be restated but the lease liability being a monetary liability will be restated
at each reporting date with the resultant difference being taken to profit and loss.
At the end of Year 1, the lease liability will be measured in terms of USD as under: Lease Liability:
Year Initial Value (USD) Lease Payment Interest @5% Closing Value (USD)
(a) (b) (c)= (a x 5%) (d = a+ c-b)

1 43,300 10,000 2,165 35,465

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