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TMI BlogThe Companies (Indian Accounting Standards) Second Amendment Rules, 2024.X X X X Extracts X X X X X X X X Extracts X X X X ..... ) They shall come into force with effect from the date of their publication in the official gazette. 2. In the Companies (Indian Accounting Standards) Rules, 2015, in the 'Annexure', under heading "B. Indian Accounting Standards (Ind AS)", in "Indian Accounting Standard (Ind AS) 116", - (i) after paragraph 102, the following paragraph shall be inserted, namely: - "102A After the commencement date, the seller-lessee shall apply paragraphs 29-35 to the right-of-use asset arising from the leaseback and paragraphs 36-46 to the lease liability arising from the leaseback. In applying paragraphs 36-46, the seller-lessee shall determine 'lease payments' or 'revised lease payments' in a way that the seller-lessee would not recognise any amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretative guidance) Sale and leaseback transaction with fixed payments and above-market terms (The example illustrates the application of requirements in paragraph 99-102 of Ind AS 116 for a seller- lessee and a buyer-lessor). An entity (Seller-lessee) sells a building to another entity (Buyer-lessor) for cash of ₹2,000,000. Immediately before the transaction, the building is carried at a cost of ₹ 1,000,000. At the same time, Seller-lessee enters into a contract with Buyer-lessor for the right to use the building for 18 years, with annual payments of ₹120,000 payable at the end of each year. The terms and conditions of the transaction are such that the transfer of the building by Seller-lessee satisfies the requirem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er-lessee calculates this amount as: ₹1,000,000 (the carrying amount of the building) × ₹1,259,200 (the discounted lease payments for the 18-year right-of-use asset) ÷ ₹1,800,000 (the fair value of the building). Seller-lessee recognises only the amount of the gain that relates to the rights transferred to Buyer-lessor of ₹240,355 calculated as follows. The gain on sale of the building amounts to ₹800,000 (₹1,800,000 -₹1,000,000), of which: (a) ₹559,645 (₹800,000 × ₹1,259,200 ÷ ₹1,800,000) relates to the right to use the building retained by Seller- lessee; and (b) ₹240,355 (₹800,000 × (₹1,800,000 - ₹1,259,200) &div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of sale). Immediately before the transaction, the building is carried at a cost of ₹1,000,000. At the same time, Seller-lessee enters into a contract with Buyer-lessor for the right to use the building for five years. Lease payments--payable annually--comprise fixed payments and variable payments that do not depend on an index or rate. The terms and conditions of the transaction are such that the transfer of the building by Seller-lessee satisfies the requirements of Ind AS 115, Revenue from Contracts with Customers to be accounted for as a sale of the building. Accordingly, Seller-lessee accounts for the transaction as a sale and leaseback. The interest rate implicit in the lease cannot be readily determined. Seller-lessee's inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts' to reflect the expected lease payments at the commencement date that, when discounted using its incremental borrowing rate, result in the carrying amount of the lease liability at that date of ₹450,000. The lease liability and the right-of-use asset arising from the leaseback are: Lease Liability Right-of-use asset Year Beginning balance Lease payments(b) 3 per cent interest expense(c) Ending balance Beginning balance Depreciation charge Ending balance ₹ ₹ ₹ ₹ ₹ ₹ ₹ 1 450,000 (95,902) 13,500 367,598 250,000 (50,000) 200,000 2 367,598 (98,124) 11,028 280,502 200,000 (50,000) 150,000 3 280,502 (99,243) 8,415 189,674 150,000 (50,000) 100,000 4 189, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00) 0 In applying paragraph 102A and paragraph 38(b) of Ind AS 116, Seller-lessee recognises in profit or loss the difference between the payments made for the lease and the lease payments that reduce the carrying amount of the lease liability. For example, if Seller-lessee pays ₹99,321 for the use of the building in Year 2, it recognises ₹1,061 (₹99,321 - ₹98,260) in profit or loss. (a) Applying paragraph 100(a) of Ind AS 116, Seller-lessee determines the proportion of the building transferred to Buyer-lessor that relates to the right of use retained by comparing, at the commencement date, the right of use it retains via the leaseback to the rights comprising the entire building. Paragraph 100(a) does not prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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