AS 19: Leases
AS 19 sets the accounting for finance and operating leases in the books of lessees and lessors — classification at inception drives whether the asset and liability appear on the lessee's balance sheet.
- Standard
- AS 19
- Types
- Finance / Op
- Ind AS twin
- Ind AS 116
- Tested at
- Intermediate
Applicability
Applies to all leases other than lease agreements for natural resources, licensing agreements for films and patents, and land leases. Entities under Ind AS apply Ind AS 116 instead.
Key points to remember
- A finance lease transfers substantially all risks and rewards incidental to ownership; every other lease is an operating lease.
- Lessee (finance lease): recognise the asset and a liability at the lower of fair value and present value of minimum lease payments (MLP).
- Lessee (operating lease): lease payments are expensed, normally on a straight-line basis over the lease term.
- Indicators of a finance lease: ownership transfer, bargain purchase option, lease term covering major part of economic life, PV of MLP ≈ fair value.
- Lessor (finance lease): recognise a receivable equal to net investment in the lease.
How the exam tests it
Classification-based MCQs and computation of finance-lease asset/liability and interest allocation are recurring Intermediate questions; CA Final tests the very different Ind AS 116 model.
Related standards
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Talk to usWhat distinguishes a finance lease from an operating lease?
A finance lease transfers substantially all risks and rewards incidental to ownership of the asset — indicated by ownership transfer, a bargain purchase option, lease term covering the major part of the asset's economic life, or PV of minimum lease payments approximating fair value. All other leases are operating leases.
At what value does a lessee record a finance lease?
At the lower of the fair value of the leased asset and the present value of minimum lease payments, each determined at the inception of the lease.
Does AS 19 apply to leases of land?
No. AS 19 specifically excludes lease agreements to use land, along with leases for natural resources and certain licensing agreements.