Summary "Comprehensive Overview of IND AS 116 for Final CA/CMA/CFA/CS Exam Preparation"

This documents contains about easy and precise explanation about IND AS 116, also known as the Indian Accounting Standard 116, is a set of guidelines issued by the Institute of Chartered Accountants of India (ICAI) for the accounting treatment of leases. It replaces the earlier standard, Ind AS 17, which was based on the principle of classification of leases as either finance or operating leases. Under IND AS 116, all leases are treated as finance leases, with the exception of short-term leases (leases with a lease term of less than 12 months) and low-value assets (assets with a value of less than INR 5,00,000). The new standard requires lessees to recognize all leases on their balance sheet as a right-of-use asset and a lease liability. The right-of-use asset represents the lessee's right to use the underlying asset for the lease term. The lease liability represents the lessee's obligation to make lease payments over the lease term. The initial measurement of the right-of-use asset and lease liability is based on the present value of the lease payments over the lease term. Subsequently, the lease liability is reduced as lease payments are made, while the right-of-use asset is depreciated over the lease term. IND AS 116 also requires lessors to account for leases differently than under the previous standard. Under the new standard, lessors must classify leases as either operating or finance leases based on the same criteria used by lessees. Operating leases are accounted for using the same principles as under Ind AS 17, while finance leases are accounted for using a new set of rules based on the transfer of risks and rewards of ownership. IND AS 116 applies to all entities that prepare financial statements in accordance with Indian Accounting Standards (Ind AS), including listed and unlisted companies, as well as public sector entities. The standard is effective for annual periods beginning on or after April 1, 2019, with earlier adoption permitted. In summary, IND AS 116 is a new lease accounting standard that requires lessees to recognize all leases on their balance sheet as a right-of-use asset and a lease liability. It also changes the way lessors account for leases. The standard applies to all entities that prepare financial statements in accordance with Ind AS and is effective for annual periods beginning on or after April 1, 2019.