Ind AS 116: Leases
Ind AS 116 puts almost all leases on the lessee's balance sheet: a right-of-use (ROU) asset and a lease liability replace the old operating/finance distinction for lessees.
- Standard
- Ind AS 116
- Lessee model
- ROU asset
- Exemptions
- ≤12m / low-value
- Typical marks
- 8–14
Applicability
Applies to all leases except short-term leases (≤ 12 months) and leases of low-value assets, for which a lessee may expense payments straight-line. Lessor accounting stays close to the old finance/operating split.
Key points to remember
- Lessee recognises a lease liability at the present value of unpaid lease payments, discounted at the rate implicit in the lease (or incremental borrowing rate).
- The ROU asset = liability + prepaid rent + initial direct costs + restoration estimates − incentives received.
- Subsequently: depreciate the ROU asset and unwind interest on the liability — front-loading total expense versus straight-line rent.
- Recognition exemptions: short-term leases and low-value assets.
- Lessors continue to classify leases as finance or operating.
How the exam tests it
Heavily tested in CA Final Financial Reporting: computation of lease liability and ROU asset, subsequent measurement schedules, and modification scenarios feature as 8–14 mark questions.
Related standards
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Talk to usWhat is a right-of-use asset?
The asset a lessee recognises representing its right to use the underlying leased asset for the lease term. It is initially measured at the amount of the lease liability plus initial direct costs, prepayments and restoration estimates, less incentives.
Which leases can stay off the balance sheet under Ind AS 116?
Short-term leases with a term of 12 months or less (with no purchase option) and leases of low-value assets — for these, the lessee may simply expense lease payments, generally straight-line.
How does Ind AS 116 differ from AS 19?
AS 19 keeps operating leases off the lessee's balance sheet; Ind AS 116 requires a right-of-use asset and lease liability for virtually all leases. Lessor accounting is broadly similar under both.