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TMI BlogCompanies (Indian Accounting Standards) Amendment Rules, 2019X X X X Extracts X X X X X X X X Extracts X X X X ..... et as deemed cost for an item of property, plant and equipment, an intangible asset or a right-of-use asset (see paragraphs D5 and D7), the entity's first Ind AS financial statements shall disclose, for each line item in the opening Ind AS Balance Sheet: (a) the aggregate of those fair values; and (b) the aggregate adjustment to the carrying amounts reported under previous GAAP."; (ii)for paragraph 39AB, the following paragraph shall be substituted, namely:- "39AB Ind AS 116, Leases, amended paragraphs 30, C4, D1, D7, D8B, D9 and D9AA, deleted paragraph D9A and added paragraphs D9B-D9E. An entity shall apply those amendments when it applies Ind AS 116." (iii) in Appendix C, in paragraph C4, for item (f), the following item shall be substituted, namely:- "(f) If an asset acquired, or liability assumed, in a past business combination was not recognised in accordance with previous GAAP, it does not have a deemed cost of zero in the opening Ind AS Balance Sheet. Instead, the acquirer shall recognise and measure it in its consolidated Balance Sheet on the basis that Ind ASs would require in the Balance Sheet of the acquiree. To illustrate: if the acquirer had not, in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ind AS 114, Regulatory Deferral Accounts)."; (d) for paragraph D9, the following paragraph shall be substituted, namely:- "D9 A first-time adopter may assess whether a contract existing at the date of transition to Ind ASs contains a lease by applying paragraphs 9-11 of Ind AS 116 to those contracts on the basis of facts and circumstances existing at that date."; (e) paragraph D9A shall be omitted; (f) for paragraph D9AA, the following paragraph shall be substituted, namely:- "D9AA When a lease includes both land and building elements, a first time adopter lessor may assess the classification of each element as finance or an operating lease at the date of transition to Ind ASs on the basis of the facts and circumstances existing as at that date."; (g) after paragraph D9AA, the following paragraph shall be inserted, namely:- "D9B When a first-time adopter that is a lessee recognises lease liabilities and right-of-use assets, it may apply the following approach to all of its leases (subject to the practical expedients described in paragraph D9D):- (a) measure a lease liability at the date of transition to Ind AS. A lessee following this approach shall measure that le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this Standard with the same meaning."; (v) In Appendix 1, (a) for paragraph 12, the following paragraph shall be substituted, namely:- "12. Following paragraph numbers appear as 'deleted' in IFRS 1. In order to maintain consistency with paragraph numbers of IFRS 1, the paragraph numbers are retained in Ind AS 101: (i) Paragraph 19 (ii) Paragraph D1(e) (iii) Paragraph D1(o) (iv) Paragraphs D9A and D9C (v)Paragraphs D10-11 (vi) Paragraph D24 (vii)Paragraph D31"; (b) for paragraphs 13 and 14, the following paragraphs shall be substituted, namely:- "13. IAS 40, Investment Property permits both cost model and fair value model (except in some situations) for measurement of investment properties after initial recognition. Ind AS 40, Investment Property, permits only the cost model. As a consequence, paragraph 30 is amended and paragraphs D7(a) and D9C are deleted." 14. Paragraphs 34-39W and 39Y-39AA have not been included in Ind AS 101 as these paragraphs relate to effective date and are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IFRS 1, these paragraph numbers are retained in Ind AS 101."; II. in "Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into account the terms of the lease. The acquirer does not recognise a separate asset or liability if the terms of an operating lease are either favourable or unfavourable when compared with market terms."; (vi) in Appendix 1, (a) for paragraph 5, the following paragraphs shall be substituted, namely:- "5 Paragraphs 64-64J and 64L related to effective date have not been included in Ind AS 103 as these are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IFRS 3, these paragraph numbers are retained in Ind AS 103. 6. The following paragraph numbers appear as 'Deleted' in IFRS 3. In order to maintain consistency with paragraph numbers of Ind AS 103, the paragraph numbers are retained in Ind AS 103: (a) Paragraph B28- B30 (b) Paragraph B32(a)"; III. in "Indian Accounting Standard (Ind AS) 104", - (i) in paragraph 4, for item (c), the following item shall be substituted, namely:- "(c) contractual rights or contractual obligations that are contingent on the future use of, or right to use, a non-financial item (for example, some licence fees, royalties, variable lease payments and similar items), as well as a lessee's resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses) and operating lease receivables recognised by a lessor are subject to the derecognition and impairment requirements of this Standard; (ii) lease liabilities recognised by a lessee are subject to the derecognition requirements in paragraph 3.3.1 of this Standard; and (iii) derivatives that are embedded in leases are subject to the embedded derivatives requirements of this Standard. "; (ii) in paragraph 5.5.15, for item (b), the following item shall be substituted, namely:- "(b) lease receivables that result from transactions that are within the scope of Ind AS 116, if the entity chooses as its accounting policy to measure the loss allowance at an amount equal to lifetime expected credit losses. That accounting policy shall be applied to all lease receivables but may be applied separately to finance and operating lease receivables. "; (iii) after paragraph 7.1.4, the following paragraph shall be inserted, namely:- "7.1.5 Ind AS 116 amended paragraphs 2.1, 5.5.15, B4.3.8, B5.5.34 and B5.5.46. An entity shall apply those amendments when it applies Ind AS 116."; (iv) in Appendix B, (a) in paragraph B4.3.8, for item (f), the following item shall be substituted, namely:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraphs relate to effective date and transition which are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IFRS 13, these paragraph numbers are retained in Ind AS 113.". VII. in "Indian Accounting Standard (Ind AS) 115", - (i) in paragraph 5, for item (a), the following item shall be substituted, namely:- "(a) lease contracts within the scope of Ind AS 116, Leases; "; (ii) in paragraph 97, for item (c), the following item shall be substituted, namely:- "(c) allocations of costs that relate directly to the contract or to contract activities (for example, costs of contract management and supervision, insurance and depreciation of tools, equipment and right-of-use assets used in fulfilling the contract);"; (iii)In Appendix B, (a) in paragraph B66, for item (a), the following item shall be substituted, namely:- "(a) a lease in accordance with Ind AS 116, Leases, if the entity can or must repurchase the asset for an amount that is less than the original selling price of the asset, unless the contract is part of a sale and leaseback transaction. If the contract is part of a sale and leaseback transaction, the entity shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isitions of intangible assets). However, a service concession arrangement may involve executory contracts that are not addressed in Indian Accounting Standards, unless the contracts are onerous, in which case Ind AS 37 applies. Therefore, this Appendix addresses additional disclosures of service concession arrangements."; (vii) in Appendix F, paragraph 1 shall be omitted. (viii) in Appendix 1, (a) for paragraph 6, the following paragraph shall be substituted, namely:- "6. Paragraphs C1B, C8A and C9 related to effective date and transition have been deleted due to following reasons: (a) Paragraphs C1B and C8A are not relevant in Indian context as the same refer to application of these amendments in case where IFRS 15 was initially applied before issuance of amendments to the standard. (b) Paragraph C9 refers to application of IAS 39, Financial Instruments, which is not relevant in Indian context.". VIII. after "Indian Accounting Standard (Ind AS) 115", the following shall be inserted, namely:- "Indian Accounting Standard (Ind AS) 116, Leases (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lease term or another systematic basis. The lessee shall apply another systematic basis if that basis is more representative of the pattern of the lessee's benefit. 7 If a lessee accounts for short-term leases applying paragraph 6, the lessee shall consider the lease to be a new lease for the purposes of this Standard if: (a) there is a lease modification; or (b) there is any change in the lease term (for example, the lessee exercises an option not previously included in its determination of the lease term). 8 The election for short-term leases shall be made by class of underlying asset to which the right of use relates. A class of underlying asset is a grouping of underlying assets of a similar nature and use in an entity's operations. The election for leases for which the underlying asset is of low value can be made on a lease-by-lease basis. Identifying a lease (paragraphs B9-B33)________________________________________ 9 At inception of a contract, an entity shall assess whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease term as the non-cancellable period of a lease, together with both: (a) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and (b) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. 19 In assessing whether a lessee is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, an entity shall consider all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease, as described in paragraphs B37- B40. 20 A lessee shall reassess whether it is reasonably certain to exercise an extension option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant change in circumstances that: (a) is within the control of the lessee; and (b) affects whether the lessee is reasonably certain to exercise an option not previously included in its determination of the lease term, or not to exercise an option previously included in its determination of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities and Contingent Assets. Initial measurement of the lease liability 26 At the commencement date, a lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date. The lease payments shall be discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the lessee shall use the lessee's incremental borrowing rate. 27 At the commencement date, the lease payments included in the measurement of the lease liability comprise the following payments for the right to use the underlying asset during the lease term that are not paid at the commencement date: (a) fixed payments (including in-substance fixed payments as described in paragraph B42), less any lease incentives receivable; (b) variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date (as described in paragraph 28); (c) amounts expected to be payable by the lessee under residual value guarantees; (d) the exercise price of a purchase option if the lessee is reasonably certain to exercise that option (assessed considering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reducing the carrying amount to reflect the lease payments made; and (c) remeasuring the carrying amount to reflect any reassessment or lease modifications specified in paragraphs 39-46, or to reflect revised in-substance fixed lease payments (see paragraph B42). 37 Interest on the lease liability in each period during the lease term shall be the amount that produces a constant periodic rate of interest on the remaining balance of the lease liability. The periodic rate of interest is the discount rate described in paragraph 26, or if applicable the revised discount rate described in paragraph 41, paragraph 43 or paragraph 45(c). 38 After the commencement date, a lessee shall recognise in profit or loss, unless the costs are included in the carrying amount of another asset applying other applicable Standards, both: (a) interest on the lease liability; and (b) variable lease payments not included in the measurement of the lease liability in the period in which the event or condition that triggers those payments occurs. Reassessment of the lease liability 39 After the commencement date, a lessee shall apply paragraphs 40-43 to remeasure the lease liability to reflect changes to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating interest rates. In that case, the lessee shall use a revised discount rate that reflects changes in the interest rate. Lease modifications 44 A lessee shall account for a lease modification as a separate lease if both: (a) the modification increases the scope of the lease by adding the right to use one or more underlying assets; and (b) the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract. 45 For a lease modification that is not accounted for as a separate lease, at the effective date of the lease modification a lessee shall: (a) allocate the consideration in the modified contract applying paragraphs 13-16; (b) determine the lease term of the modified lease applying paragraphs 18-19; and (c) remeasure the lease liability by discounting the revised lease payments using a revised discount rate. The revised discount rate is determined as the interest rate implicit in the lease for the remainder of the lease term, if that rate can be readily determined, or the lessee's incremental borrowing ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... variable lease payments not included in the measurement of the lease liability within operating activities. Disclosure 51 The objective of the disclosures is for lessees to disclose information in the notes that, together with the information provided in the balance sheet, statement of profit and loss and statement of cash flows, gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of the lessee. Paragraphs 52-60 specify requirements on how to meet this objective. 52 A lessee shall disclose information about its leases for which it is a lessee in a single note or separate section in its financial statements. However, a lessee need not duplicate information that is already presented elsewhere in the financial statements, provided that the information is incorporated by cross-reference in the single note or separate section about leases. 53 A lessee shall disclose the following amounts for the reporting period: (a) depreciation charge for right-of-use assets by class of underlying asset; (b) interest expense on lease liabilities; (c) the expense relating to short-term leases accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation that helps users of financial statements to assess: (a) the nature of the lessee's leasing activities; (b) future cash outflows to which the lessee is potentially exposed that are not reflected in the measurement of lease liabilities. This includes exposure arising from: (i) variable lease payments (as described in paragraph B49); (ii) extension options and termination options (as described in paragraph B50); (iii) residual value guarantees (as described in paragraph B51); and (iv) leases not yet commenced to which the lessee is committed. (c) restrictions or covenants imposed by leases; and (d) sale and leaseback transactions (as described in paragraph B52). 60 A lessee that accounts for short-term leases or leases of low-value assets applying paragraph 6 shall disclose that fact. Lessor_____________________________________________________________________ Classification of leases (paragraphs B53-B58) 61 A lessor shall classify each of its leases as either an operating lease or a finance lease. 62 A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. A lease is classif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is reassessed only if there is a lease modification. Changes in estimates (for example, changes in estimates of the economic life or of the residual value of the underlying asset), or changes in circumstances (for example, default by the lessee), do not give rise to a new classification of a lease for accounting purposes. Finance leases Recognition and measurement 67 At the commencement date, a lessor shall recognise assets held under a finance lease in its balance sheet and present them as a receivable at an amount equal to the net investment in the lease. Initial measurement 68 The lessor shall use the interest rate implicit in the lease to measure the net investment in the lease. In the case of a sublease, if the interest rate implicit in the sublease cannot be readily determined, an intermediate lessor may use the discount rate used for the head lease (adjusted for any initial direct costs associated with the sublease) to measure the net investment in the sublease. 69 Initial direct costs, other than those incurred by manufacturer or dealer lessors, are included in the initial measurement of the net investment in the lease and reduce the amount of income recognised over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to profit or loss equivalent to the profit or loss resulting from an outright sale of the underlying asset, at normal selling prices, reflecting any applicable volume or trade discounts. 73 Manufacturer or dealer lessors sometimes quote artificially low rates of interest in order to attract customers. The use of such a rate would result in a lessor recognising an excessive portion of the total income from the transaction at the commencement date. If artificially low rates of interest are quoted, a manufacturer or dealer lessor shall restrict selling profit to that which would apply if a market rate of interest were charged. 74 A manufacturer or dealer lessor shall recognise as an expense costs incurred in connection with obtaining a finance lease at the commencement date because they are mainly related to earning the manufacturer or dealer's selling profit. Costs incurred by manufacturer or dealer lessors in connection with obtaining a finance lease are excluded from the definition of initial direct costs and, thus, are excluded from the net investment in the lease. Subsequent measurement 75 A lessor shall recognise finance income over the lease term, based on a pattern reflect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll apply another systematic basis if that basis is more representative of the pattern in which benefit from the use of the underlying asset is diminished. 82 A lessor shall recognise costs, including depreciation, incurred in earning the lease income as an expense. 83 A lessor shall add initial direct costs incurred in obtaining an operating lease to the carrying amount of the underlying asset and recognise those costs as an expense over the lease term on the same basis as the lease income. 84 The depreciation policy for depreciable underlying assets subject to operating leases shall be consistent with the lessor's normal depreciation policy for similar assets. A lessor shall calculate depreciation in accordance with Ind AS 16 and Ind AS 38. 85 A lessor shall apply Ind AS 36 to determine whether an underlying asset subject to an operating lease is impaired and to account for any impairment loss identified. 86 A manufacturer or dealer lessor does not recognise any selling profit on entering into an operating lease because it is not the equivalent of a sale. Lease modifications 87 A lessor shall account for a modification to an operating lease as a new lease from the effective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing the undiscounted lease payments to be received on an annual basis for a minimum of each of the first five years and a total of the amounts for the remaining years. A lessor shall reconcile the undiscounted lease payments to the net investment in the lease. The reconciliation shall identify the unearned finance income relating to the lease payments receivable and any discounted unguaranteed residual value. Operating leases 95 For items of property, plant and equipment subject to an operating lease, a lessor shall apply the disclosure requirements of Ind AS 16. In applying the disclosure requirements in Ind AS 16, a lessor shall disaggregate each class of property, plant and equipment into assets subject to operating leases and assets not subject to operating leases. Accordingly, a lessor shall provide the disclosures required by Ind AS 16 for assets subject to an operating lease (by class of underlying asset) separately from owned assets held and used by the lessor. 96 A lessor shall apply the disclosure requirements in Ind AS 36, Ind AS 38, Ind AS 40 and Ind AS 41 for assets subject to operating leases. 97 A lessor shall disclose a maturity analysis of lease payments, show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the transfer of an asset by the seller-lessee does not satisfy the requirements of Ind AS 115 to be accounted for as a sale of the asset: (a) the seller-lessee shall continue to recognise the transferred asset and shall recognise a financial liability equal to the transfer proceeds. It shall account for the financial liability applying Ind AS 109. (b) the buyer-lessor shall not recognise the transferred asset and shall recognise a financial asset equal to the transfer proceeds. It shall account for the financial asset applying Ind AS 109. Appendix A Defined terms This appendix is an integral part of the Standard. commencement date of the lease (commencement date) The date on which a lessor makes an underlying asset available for use by a lessee economic life Either the period over which an asset is expected to be economically usable by one or more users or the number of production or similar units expected to be obtained from an asset by one or more users. effective date of the modification The date when both parties agree to a lease modification. fair value For the purpose of applying the lessor accounting requirements in this Standard, the amount for which an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g an option to terminate the lease. For the lessee, lease payments also include amounts expected to be payable by the lessee under residual value guarantees. Lease payments do not include payments allocated to non-lease components of a contract, unless the lessee elects to combine non-lease components with a lease component and to account for them as a single lease component. For the lessor, lease payments also include any residual value guarantees provided to the lessor by the lessee, a party related to the lessee or a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee. Lease payments do not include payments allocated to non-lease components. lease term The non-cancellable period for which a lessee has the right to use an underlying asset, together with both: (a) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and (b) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. Lessee An entity that obtains the right to use an underlying asset for a period of time in exchange for consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring after the commencement date, other than the passage of time. Terms defined in other Standards and used in this Standard with the same meaning Contract An agreement between two or more parties that creates enforceable rights and obligations. useful life The period over which an asset is expected to be available for use by an entity; or the number of production or similar units expected to be obtained from an asset by an entity. Appendix B Application guidance This appendix is an integral part of the Standard. It describes the application of paragraphs 1-103 and has the same authority as the other parts of the Standard. Portfolio application B1 This Standard specifies the accounting for an individual lease. However, as a practical expedient, an entity may apply this Standard to a portfolio of leases with similar characteristics if the entity reasonably expects that the effects on the financial statements of applying this Standard to the portfolio would not differ materially from applying this Standard to the individual leases within that portfolio. If accounting for a portfolio, an entity shall use estimates and assumptions that reflect the size and composition of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low-value asset. B8 Examples of low-value underlying assets can include tablet and personal computers, small items of office furniture and telephones. Identifying a lease (paragraphs 9-11) B9 To assess whether a contract conveys the right to control the use of an identified asset (see paragraphs B13-B20) for a period of time, an entity shall assess whether, throughout the period of use, the customer has both of the following: (a) the right to obtain substantially all of the economic benefits from use of the identified asset (as described in paragraphs B21-B23); and (b) the right to direct the use of the identified asset (as described in paragraphs B24-B30). B10 If the customer has the right to control the use of an identified asset for only a portion of the term of the contract, the contract contains a lease for that portion of the term. B11 A contract to receive goods or services may be entered into by a joint arrangement, or on behalf of a joint arrangement, as defined in Ind AS 111, Joint Arrangements. In this case, the joint arrangement is considered to be the customer in the contract. Accordingly, in assessing whether such a contract contains a lease, an entity shall as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substantial difference between the customer's use of the asset, or the performance of the asset, and the use or performance considered likely at inception of the contract; and (d) a substantial difference between the market price of the asset during the period of use, and the market price considered likely at inception of the contract. B17 If the asset is located at the customer's premises or elsewhere, the costs associated with substitution are generally higher than when located at the supplier's premises and, therefore, are more likely to exceed the benefits associated with substituting the asset. B18 The supplier's right or obligation to substitute the asset for repairs and maintenance, if the asset is not operating properly or if a technical upgrade becomes available does not preclude the customer from having the right to use an identified asset. B19 If the customer cannot readily determine whether the supplier has a substantive substitution right, the customer shall presume that any substitution right is not substantive. Portions of assets B20 A capacity portion of an asset is an identified asset if it is physically distinct (for example, a floor of a building). A capaci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefits from use of the retail space. This is because the cash flows arising from those sales are considered to be economic benefits that the customer obtains from use of the retail space, a portion of which it then pays to the supplier as consideration for the right to use that space. Right to direct the use B24 A customer has the right to direct the use of an identified asset throughout the period of use only if either: (a) the customer has the right to direct how and for what purpose the asset is used throughout the period of use (as described in paragraphs B25-B30); or (b) the relevant decisions about how and for what purpose the asset is used are predetermined and: (i) the customer has the right to operate the asset (or to direct others to operate the asset in a manner that it determines) throughout the period of use, without the supplier having the right to change those operating instructions; or (ii) the customer designed the asset (or specific aspects of the asset) in a way that predetermines how and for what purpose the asset will be used throughout the period of use. How and for what purpose the asset is used B25 A customer has the right to direct how and for wha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod of use B28 The relevant decisions about how and for what purpose the asset is used can be predetermined in a number of ways. For example, the relevant decisions can be predetermined by the design of the asset or by contractual restrictions on the use of the asset. B29 In assessing whether a customer has the right to direct the use of an asset, an entity shall consider only rights to make decisions about the use of the asset during the period of use, unless the customer designed the asset (or specific aspects of the asset) as described in paragraph B24(b)(ii). Consequently, unless the conditions in paragraph B24(b)(ii) exist, an entity shall not consider decisions that are predetermined before the period of use. For example, if a customer is able only to specify the output of an asset before the period of use, the customer does not have the right to direct the use of that asset. The ability to specify the output in a contract before the period of use, without any other decision-making rights relating to the use of the asset, gives a customer the same rights as any customer that purchases goods or services. Protective rights B30 A contract may include terms and conditions des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-cancellable period of a lease, an entity shall apply the definition of a contract and determine the period for which the contract is enforceable. A lease is no longer enforceable when the lessee and the lessor each has the right to terminate the lease without permission from the other party with no more than an insignificant penalty. B35 If only a lessee has the right to terminate a lease, that right is considered to be an option to terminate the lease available to the lessee that an entity considers when determining the lease term. If only a lessor has the right to terminate a lease, the non-cancellable period of the lease includes the period covered by the option to terminate the lease. B36 The lease term begins at the commencement date and includes any rent-free periods provided to the lessee by the lessor. B37 At the commencement date, an entity assesses whether the lessee is reasonably certain to exercise an option to extend the lease or to purchase the underlying asset, or not to exercise an option to terminate the lease. The entity considers all relevant facts and circumstances that create an economic incentive for the lessee to exercise, or not to exercise, the option ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extend the lease, or not to exercise the option to terminate the lease. B39 The shorter the non-cancellable period of a lease, the more likely a lessee is to exercise an option to extend the lease or not to exercise an option to terminate the lease. This is because the costs associated with obtaining a replacement asset are likely to be proportionately higher the shorter the non-cancellable period. B40 A lessee's past practice regarding the period over which it has typically used particular types of assets (whether leased or owned), and its economic reasons for doing so, may provide information that is helpful in assessing whether the lessee is reasonably certain to exercise, or not to exercise, an option. For example, if a lessee has typically used particular types of assets for a particular period of time or if the lessee has a practice of frequently exercising options on leases of particular types of underlying assets, the lessee shall consider the economic reasons for that past practice in assessing whether it is reasonably certain to exercise an option on leases of those assets. B41 Paragraph 20 specifies that, after the commencement date, a lessee reassesses the lease term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... realistic. In this case, an entity shall consider the realistic set of payments to be lease payments. (c) there is more than one realistic set of payments that a lessee could make, but it must make at least one of those sets of payments. In this case, an entity shall consider the set of payments that aggregates to the lowest amount (on a discounted basis) to be lease payments. Lessee involvement with the underlying asset before the commencement date Costs of the lessee relating to the construction or design of the underlying asset B43 An entity may negotiate a lease before the underlying asset is available for use by the lessee. For some leases, the underlying asset may need to be constructed or redesigned for use by the lessee. Depending on the terms and conditions of the contract, a lessee may be required to make payments relating to the construction or design of the asset. B44 If a lessee incurs costs relating to the construction or design of an underlying asset, the lessee shall account for those costs applying other applicable Standards, such as Ind AS 16. Costs relating to the construction or design of an underlying asset do not include payments made by the lessee for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease payments. (iv) exposure to other risks arising from leases. (v) deviations from industry practice. Such deviations may include, for example, unusual or unique lease terms and conditions that affect a lessee's lease portfolio. (b) whether that information is apparent from information either presented in the primary financial statements or disclosed in the notes. A lessee need not duplicate information that is already presented elsewhere in the financial statements. B49 Additional information relating to variable lease payments that, depending on the circumstances, may be needed to satisfy the disclosure objective in paragraph 51 could include information that helps users of financial statements to assess, for example: (a) the lessee's reasons for using variable lease payments and the prevalence of those payments; (b) the relative magnitude of variable lease payments to fixed payments; (c) key variables upon which variable lease payments depend and how payments are expected to vary in response to changes in those key variables; and (d) other operational and financial effects of variable lease payments. B50 Additional information relating to extension options or term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o adjust the lease payments for particular changes that occur between the inception date and the commencement date (such as a change in the lessor's cost of the underlying asset or a change in the lessor's cost of financing the lease). In that case, for the purposes of classifying the lease, the effect of any such changes shall be deemed to have taken place at the inception date. B55 When a lease includes both land and buildings elements, a lessor shall assess the classification of each element as a finance lease or an operating lease separately applying paragraphs 62-66 and B53- B54. In determining whether the land element is an operating lease or a finance lease, an important consideration is that land normally has an indefinite economic life. B56 Whenever necessary in order to classify and account for a lease of land and buildings, a lessor shall allocate lease payments (including any lump-sum upfront payments) between the land and the buildings elements in proportion to the relative fair values of the leasehold interests in the land element and buildings element of the lease at the inception date. If the lease payments cannot be allocated reliably between these two elements, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, it shall disclose that fact and apply the practical expedient to all of its contracts. As a result, the entity shall apply the requirements in paragraphs 9-11 only to contracts entered into (or changed) on or after the date of initial application. Lessees C5 A lessee shall apply this Standard to its leases either: (a) retrospectively to each prior reporting period presented applying Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors; or (b) retrospectively with the cumulative effect of initially applying the Standard recognised at the date of initial application in accordance with paragraphs C7-C13. C6 A lessee shall apply the election described in paragraph C5 consistently to all of its leases in which it is a lessee. C7 If a lessee elects to apply this Standard in accordance with paragraph C5(b), the lessee shall not restate comparative information. Instead, the lessee shall recognise the cumulative effect of initially applying this Standard as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the date of initial application. Leases previously classified as operating leases C8 If a lessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Liabilities and Contingent Assets, immediately before the date of initial application as an alternative to performing an impairment review. If a lessee chooses this practical expedient, the lessee shall adjust the right-of-use asset at the date of initial application by the amount of any provision for onerous leases recognised in the balance sheet immediately before the date of initial application. (c) a lessee may elect not to apply the requirements in paragraph C8 to leases for which the lease term ends within 12 months of the date of initial application. In this case, a lessee shall: (i) account for those leases in the same way as short-term leases as described in paragraph 6; and (ii) include the cost associated with those leases within the disclosure of short-term lease expense in the annual reporting period that includes the date of initial application. (d) a lessee may exclude initial direct costs from the measurement of the right-of-use asset at the date of initial application. (e) a lessee may use hindsight, such as in determining the lease term if the contract contains options to extend or terminate the lease. Leases previously classified as finance leases C11 If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d AS 17 but finance leases applying this Standard, account for the sublease as a new finance lease entered into at the date of initial application. Sale and leaseback transactions before the date of initial application C16 An entity shall not reassess sale and leaseback transactions entered into before the date of initial application to determine whether the transfer of the underlying asset satisfies the requirements in Ind AS 115 to be accounted for as a sale. C17 If a sale and leaseback transaction was accounted for as a sale and a finance lease applying Ind AS 17, the seller-lessee shall: (a) account for the leaseback in the same way as it accounts for any other finance lease that exists at the date of initial application; and (b) continue to amortise any gain on sale over the lease term. C18 If a sale and leaseback transaction was accounted for as a sale and operating lease applying Ind AS 17, the seller-lessee shall: (a) account for the leaseback in the same way as it accounts for any other operating lease that exists at the date of initial application; and (b) adjust the leaseback right-of-use asset for any deferred gains or losses that relate to off-market terms reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'. 4. Paragraph C20 of Appendix C, Effective Date and Transition, dealing with interchange of reference of IFRS 9 to IAS 39 if entity does not apply IFRS 9 has been deleted since India has early adopted Ind AS 109, corresponding to IFRS 9. IX. in "Indian Accounting Standard (Ind AS) 1", - (i) in paragraph 123, for item (b), the following item shall be substituted, namely:- "(b) when substantially all the significant risks and rewards of ownership of financial assets and, for lessor, assets subject to leases, are transferred to other entities; "; (ii) after paragraph 139N, the following paragraphs shall be inserted, namely:- "139 O-139P Omitted * 139Q Ind AS 116, Leases, amended paragraph 123. An entity shall apply that amendment when it applies Ind AS 116."; (iii) in Appendix 1, for paragraph 10, the following paragraph shall be substituted, namely:- "10. Paragraphs 139 to 139M and 139O-139P related to Transition and Effective Date have not been included in Ind AS 1 as these are not relevant in Indian conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Paragraphs 53-58 of IAS 7 have not been included in Ind AS 7 as these paragraphs relate to Effective Date. However, in order to maintain consistency with paragraph numbers of IAS 7, these paragraph numbers are retained in Ind AS 7. ". XII. in "Indian Accounting Standard (Ind AS) 12", - (i) in paragraph 20, the following paragraph shall be substituted, namely:- "20. Ind ASs permit or require certain assets to be carried at fair value or to be revalued (see, for example, Ind AS 16, Property, Plant and Equipment, Ind AS 38, Intangible Assets, Ind AS 109, Financial Instruments and Ind AS 116, Leases). In some jurisdictions, the revaluation or other restatement of an asset to fair value affects taxable profit (tax loss) for the current period. As a result, the tax base of the asset is adjusted and no temporary difference arises. In other jurisdictions, the revaluation or restatement of an asset does not affect taxable profit in the period of the revaluation or restatement and, consequently, the tax base of the asset is not adjusted. Nevertheless, the future recovery of the carrying amount will result in a taxable flow of economic benefits to the entity and the amount that will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant and equipment and costs incurred subsequently to add to, replace part of, or service it. The cost of an item of property, plant and equipment may include costs incurred relating to leases of assets that are used to construct, add to, replace part of or service an item of property, plant and equipment, such as depreciation of right-of-use assets." ; (iv) paragraphs 27 shall be omitted; (v) for paragraph 44, the following paragraph shall be substituted, namely:- "44. An entity allocates the amount initially recognised in respect of an item of property, plant and equipment to its significant parts and depreciates separately each such part. For example, it may be appropriate to depreciate separately the airframe and engines of an aircraft. Similarly, if an entity acquires property, plant and equipment subject to an operating lease in which it is the lessor, it may be appropriate to depreciate separately amounts reflected in the cost of that item that are attributable to favourable or unfavourable lease terms relative to market terms. "; (vi) for paragraphs 68 and 69, the following paragraphs shall be substituted, namely:- "68 The gain or loss arising from the derecognitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 shall be omitted. XV. in "Indian Accounting Standard (Ind AS) 21", - (i) for paragraph 16, the following paragraph shall be substituted, namely:- "16 The essential feature of a monetary item is a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: pensions and other employee benefits to be paid in cash; provisions that are to be settled in cash; lease liabilities; and cash dividends that are recognised as a liability. Similarly, a contract to receive (or deliver) a variable number of the entity's own equity instruments or a variable amount of assets in which the fair value to be received (or delivered) equals a fixed or determinable number of units of currency is a monetary item. Conversely, the essential feature of a non-monetary item is the absence of a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: amounts prepaid for goods and services; goodwill; intangible assets; inventories; property, plant and equipment; right-of-use assets and provisions that are to be settled by the delivery of a non-monetary asset."; (ii) after paragraph 57, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lessor to receive, and an obligation of the lessee to pay, a stream of payments that are substantially the same as blended payments of principal and interest under a loan agreement. The lessor accounts for its investment in the amount receivable under a finance lease rather than the underlying asset itself that is subject to the finance lease. Accordingly, a lessor regards a finance lease as a financial instrument. Under Ind AS 116, a lessor does not recognise its entitlement to receive lease payments under an operating lease. The lessor continues to account for the underlying asset itself rather than any amount receivable in the future under the contract. Accordingly, a lessor does not regard an operating lease as a financial instrument, except as regards individual payments currently due and payable by lessee. AG10 Physical assets (such as inventories, property, plant and equipment), right-of-use assets and intangible assets (such as patents and trademarks) are not financial assets. Control of such physical assets, right-of-use assets and intangible assets creates an opportunity to generate an inflow of cash or another financial asset, but it does not give rise to a present ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ", - (i) in paragraph 3, for item (c), the following item shall be substituted, namely:- "(c) leases of intangible assets accounted for in accordance with Ind AS 116, Leases."; (ii) for paragraph 6, the following paragraph shall be substituted, namely:- "6. Rights held by a lease under licensing agreements for items such as motion picture films, video recordings, plays, manuscripts, patents and copyrights are within the scope of this Standard and are excluded from the scope of Ind AS 116."; (iii)for paragraphs 113 and 114, the following paragraphs shall be substituted, namely:- "113 The gain or loss arising from the derecognition of an intangible asset shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset. It shall be recognised in profit or loss when the asset is derecognised (unless Ind AS 116 requires otherwise on a sale and leaseback). Gains shall not be classified as revenue. 114 The disposal of an intangible asset may occur in a variety of ways (e.g. by sale, by entering into a finance lease, or by donation). The date of disposal of an intangible asset is the date that the recipient obtains control of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ind AS 16 applies to owned owner-occupied property and Ind AS 116 applies to owner-occupied property held by a lessee as a right-of-use asset."; (iv) in paragraph 8, for item (c), the following item shall be substituted, namely:- "(c) a building owned by the entity (or a right-of-use asset relating to a building held by the entity) and leased out under one or more operating leases."; (v) in paragraph 9, for item (c), the following item shall be substituted, namely:- "(c) owner-occupied property (see Ind AS 16 and Ind AS 116), including (among other things) property held for future use as owner-occupied property, property held for future development and subsequent use as owner-occupied property, property occupied by employees (whether or not the employees pay rent at market rates) and owner-occupied property awaiting disposal. "; (vi) for paragraph 16, the following paragraph shall be substituted, namely:- "16 An owned investment property shall be recognised as an asset when, and only when: (a) it is probable that the future economic benefits that are associated with the investment property will flow to the entity; and (b) the cost of the investment property can be mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e asset and shall be recognised in profit or loss (unless Ind AS 116 requires otherwise on a sale and leaseback) in the period of the retirement or disposal."; (xv) for paragraph 74, the following paragraph shall be substituted, namely:- "74 The disclosures below apply in addition to those in Ind AS 116. In accordance with Ind AS 116, the owner of an investment property provides lessors' disclosures about leases into which it has entered. A lessee that holds an investment property as a righ-of-use asset provides lessees' disclosures as required by Ind AS 116 and lessors' disclosures as required by Ind AS 116 for any operating leases into which it has entered. "; (xvi) for paragraph 84B, the following paragraph shall be substituted, namely:- "Ind AS 116 84B An entity applying Ind AS 116, and its related amendments to this Standard, for the first time shall apply the transition requirements in Appendix C of Ind AS 116 to its investment property held as right-of-use asset. "; (xvii) for paragraph 85F, the following paragraph shall be substituted, namely:- "85F Ind AS 116, amended the scope of Ind AS 40 by defining investment property to include both owned investment propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Paragraphs 42-47 (ix) Paragraph 49 (x) Paragraph 51 (xi) Paragraph 57(e) (xii) Paragraph 75(b) and (d)". XXI. in "Indian Accounting Standard (Ind AS) 41", - (i) in paragraph 2, after item (d), following item shall be inserted, namely:- "(e) right-of-use assets arising from a lease of land related to agricultural activity (see Ind AS 116, Leases)."; (ii) after paragraph 57, following paragraphs shall be inserted, namely:- "Effective date and transition_________________________________________________ 58-63 Omitted* 64 Ind AS 116 amended paragraph 2. An entity shall apply that amendment when it applies Ind AS 116."; (iii) in Appendix 1, after paragraph 2, following paragraph shall be inserted, namely:- "3. Paragraphs 58-63 of IAS 41 have not been included in Ind AS 41 as these paragraphs relate to effective date and transition which is not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 41, these paragraph numbers are retained in Ind AS 41." [F. No. 01/01/2009-CL-V-(Part VII)] (K.V.R. MURTY) Joint Secretary Note :The principal rules were published in the Gazette of India, Extraordinary, Part II, Section 3, S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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