Ind AS 116 — Lessee lease accounting

Under Ind AS 116, the LESSEE recognises a Right-of-Use (ROU) asset AND a corresponding lease liability for ALL leases (with optional exemptions for short-term leases ≤ 12 months and low-value asset leases) — eliminating the earlier operating-vs-finance lease split that used to keep operating leases off-balance-sheet.

Key points

• Effective FY 2019-20 for Ind AS-applicable companies, Ind AS 116 brought all leases (except optional exemptions) on-balance-sheet from the lessee's side.
• INITIAL RECOGNITION: lease liability = present value of unpaid lease payments discounted at the rate implicit in the lease (or the lessee's incremental borrowing rate).
• ROU asset = lease liability + lease payments made at/before commencement + initial direct costs + restoration obligation − incentives received.
• SUBSEQUENT MEASUREMENT: ROU asset depreciated (typically straight-line over the shorter of useful life or lease term);
• lease liability carried at amortised cost using the effective-interest method.
• P&L recognises depreciation + finance cost (front-loaded) — total expense is HIGHER in early years vs straight-line rent under the old standard.
• EXEMPTIONS: (a) short-term leases ≤ 12 months without purchase option, (b) low-value asset leases (typically ≤ $5,000 new) — both expensed straight-line.
• LESSOR accounting largely unchanged (operating vs finance distinction retained).

Reference: Ind AS 116, Companies (Indian Accounting Standards) Rules 2015