Accounting Standard 19: The objective of AS 19 is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosures in relation to finance leases and operating leases.
A Lease is an agreement whereby the Lessor (legal owner of an asset) conveys to the Lessee (another party) in return for a payment or series of periodic payments (Lease rents), the right to use an asset for an agreed period of time. Applicability of AS 19
Ind AS 17:
Leases (IAS 17) As per IFRS: IAS 17 requires all leases rentals to be charged to statement of profit and loss on straight-line basis in case of operating leases unless another systematic basis is more representative of the time pattern of the user‘s benefit even if the payments to the lessor are not on that basis.
Carve out: A carve-out has been made to provide that lease rentals, in case of operating leases, shall be charged to the statement of profit and loss in accordance with the lease agreement unless the payments to the lessor are structured to increase in line with expected general inflation to compensate for the lessor‘s expected inflationary cost increases. If payments to the lessor vary because of factors other than general inflation, then this condition is not met.
Reason: Companies enter into various kinds of lease agreements to get the right to use an asset of the lessor. Considering the Indian inflationary situation, lease agreements contain periodic rent escalation. Accordingly, where there is periodic rent escalation in line with the expected inflation so as to compensate the lessor for expec ted inflationary cost increases, the rentals shall not be straight-lined.
Difference Between AS 19 and Ind AS 17
|AS 19||Ind AS 17|
|AS 19 is not applicable to lease of lands.||Ind AS 17 contains specific provisions dealing with leases of land and building.|
|The term “Residual Value” is defined in AS 19.||Ind AS 17 does not define “Residual Value”.|
|There are some differences in disclosure requirements of AS 19 and Ind AS 17.|
|Though both the terms are used at some places in AS 19, these terms are not defined and distinguished.||Ind AS 17 makes a distinction between inception of lease and commencement of lease.|
As per AS 19, such recognition is at the inception
of the lease.
|As per Ind AS 17, the lessee shall recognise finance leases as assets and liabilities in balance sheet at the commencement of the lease term|
|This aspect is not dealt with in AS 19.||Ind AS 17 deals with adjustment of lease payments made during the period between inception of the lease and the commencement of the lease term.|
|AS 19 does not contain such provisions||There are separate Ind AS dealing with measurement aspects of investment properties (Ind AS 40) and biological assets (Ind AS 41). Accordingly, if such assets are provided or held under a lease agreement, then the measurement principles, given in Ind AS 17 will not apply.|
|The existing standard does not contain such guidance||
Ind AS 17 provides guidance on accounting for:
|AS 19 prohibits upward revision of unguaranteed residual value, during the term of the lease||Ind AS 17 permits upward revision of unguaranteed residual value, during the term of the lease|
|In case of a sale and leaseback transaction (in case of finance lease), AS 19 requires the excess of sale proceeds, over the carrying amount of the asset, to be deferred and amortised by the seller(lessee) over the tenure of lease, in proportion to depreciation of the leased asset.||Ind AS 17 also specifies that in case of a sale and leaseback transaction (in case of finance lease), the excess of sale proceeds, over the carrying amount of the asset, to be deferred and amortised by the seller(lessee), but it does not specify the method of amortisation.|
|These matters are not addressed in the existing standard.||Ind AS 17 requires current/non-current classification of lease liabilities if such classification is made for other liabilities also. It also makes reference to Ind AS 105 on “Non-current Assets Held for Sale and Discontinued Operations “.|
|AS 19 does not provide for the same.||Ind AS 17 states that in case of operating lease, if escalation of lease rentals is attributable to the expected general inflation so as to compensate the lessor for expected inflationary costs shall not be straight lined.|
|AS 19 requires the initial direct costs, incurred by the lessor(in case of operating lease), to be either charged off, at the time of incurrence or to be amortised over the lease period||Ind AS 17 states that the initial direct costs, incurred by the lessor (in case of operating lease), shall be included in the carrying amount of leased asset and amortised as an expense, over the lease period.|
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