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leases
Objective
  1. This Standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. The objective is to ensure that lessees and lessors provide relevant information in a manner that faithfully represents those transactions. This information gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of an entity.

An entity shall consider the terms and conditions of contracts and all relevant facts and circumstances when applying this Standard. An entity shall apply this Standard consistently to contracts with similar characteristics and in similar circumstances.

Scope
  1. An entity shall apply this Standard to all leases, including leases of right-of-use assets in a sublease, except for:
    1. leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources;
    2. leases of biological assets within the scope of Ind AS 41, Agriculture, held by a lessee;
    3. service concession arrangements within the scope of Appendix D, Service Concession Arrangements, of Ind AS 115, Revenue from Contracts with Customer;
    4. licences of intellectual property granted by a lessor within the scope

# This Ind AS was notified vide G.S.R. 273(E) dated 30th March, 2019 and was amended vide Notification No. G.S.R. 463(E) dated 24th July, 2020 and G.S.R. 419(E) dated 18th June, 2021.

of Ind AS 115, Revenue from Contracts with Customers; and

  1. rights held by a lessee under licensing agreements within the scope of Ind AS 38, Intangible Assets, for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights.
  1. A lessee may, but is not required to, apply this Standard to leases of intangible assets other than those described in paragraph 3(e).
Recognition exemptions (paragraphs B3–B8)
  1. A lessee may elect not to apply the requirements in paragraphs 22 49 to:
    1. short-term leases; and
    2. leases for which the underlying asset is of low value (as described in paragraphs B3–B8).
  2. If a lessee elects not to apply the requirements in paragraphs 22–49 to either short-term leases or leases for which the underlying asset is of low value, the lessee shall recognise the lease payments associated with those leases as an expense on either a straight-line basis over the lease term or another systematic basis. The lessee shall apply another systematic basis if that basis is more representative of the pattern of the lessee’s benefit.
  3. If a lessee accounts for short-term leases applying paragraph 6, the lessee shall consider the lease to be a new lease for the purposes of this Standard if:
    1. there is a lease modification; or
    2. there is any change in the lease term (for example, the lessee exercises an option not previously included in its determination of the lease term).
  4. The election for short-term leases shall be made by class of underlying asset to which the right of use relates. A class of underlying asset is a grouping of underlying assets of a similar nature and use in an entity’s operations. The election for leases for which the underlying asset is of low value can be made on a lease-by-lease basis.
Identifying a lease (paragraphs B9–B33)
  1. At inception of a contract, an entity shall assess whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Paragraphs B9–B31 set out guidance on the assessment of whether a contract is, or contains, a lease.
  2. A period of time may be described in terms of the amount of use of an identified asset (for example, the number of production units that an item of equipment will be used to produce).
  3. An entity shall reassess whether a contract is, or contains, a lease only if the terms and conditions of the contract are changed.
Separating components of a contract
  1. For a contract that is, or contains, a lease, an entity shall account for each lease component within the contract as a lease separately from non-lease components of the contract, unless the entity applies the practical expedient in paragraph 15. Paragraphs B32–B33 set out guidance on separating components of a contract.
Lessee
  1. For a contract that contains a lease component and one or more additional lease or non-lease components, a lessee shall allocate the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.
  2. The relative stand-alone price of lease and non-lease components shall be determined on the basis of the price the lessor, or a similar supplier, would charge an entity for that component, or a similar component, separately. If an observable stand-alone price is not readily available, the lessee shall estimate the stand-alone price, maximising the use of observable information.
  3. As a practical expedient, a lessee may elect, by class of underlying
  asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component. A lessee shall not apply this practical expedient to embedded derivatives that meet the criteria in paragraph 4.3.3 of Ind AS 109, Financial Instruments.
  1. Unless the practical expedient in paragraph 15 is applied, a lessee shall account for non-lease components applying other applicable Standards.
Lessor
  1. For a contract that contains a lease component and one or more additional lease or non-lease components, a lessor shall allocate the consideration in the contract applying paragraphs 73–90 of Ind AS 115.
Lease term (paragraphs B34–B41)
  1. An entity shall determine the lease term as the non-cancellable period of a lease, together with both:
    1. periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and
    2. periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.
  2. In assessing whether a lessee is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, an entity shall consider all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease, as described in paragraphs B37– B40.
  3. A lessee shall reassess whether it is reasonably certain to exercise an extension option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant change in circumstances that:
    1. is within the control of the lessee; and
    2. affects whether the lessee is reasonably certain to exercise an

 

option not previously included in its determination of the lease term, or not to exercise an option previously included in its determination of the lease term (as described in paragraph B41).

  1. An entity shall revise the lease term if there is a change in the non- cancellable period of a lease. For example, the non-cancellable period of a lease will change if:
    1. the lessee exercises an option not previously included in the entity’s determination of the lease term;
    2. the lessee does not exercise an option previously included in the entity’s determination of the lease term;
    3. an event occurs that contractually obliges the lessee to exercise an option not previously included in the entity’s determination of the lease term; or
    4. an event occurs that contractually prohibits the lessee from exercising an option previously included in the entity’s determination of the lease term.
Lessee
Recognition
  • At the commencement date, a lessee shall recognise a right-of- use asset and a lease liability.
Measurement
Initial measurement
Initial measurement of the right-of-use asset
  • At the commencement date, a lessee shall measure the right-of- use asset at cost.
  1. The cost of the right-of-use asset shall comprise:
    1. the amount of the initial measurement of the lease liability, as described in paragraph 26;
    2. any lease payments made at or before the commencement date,
  less any lease incentives received;
  1. any initial direct costs incurred by the lessee; and
  2. an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories. The lessee incurs the obligation for those costs either at the commencement date or as a consequence of having used the underlying asset during a particular period.
  1. A lessee shall recognise the costs described in paragraph 24(d) as part of the cost of the right-of-use asset when it incurs an obligation for those costs. A lessee applies Ind AS 2, Inventories, to costs that are incurred during a particular period as a consequence of having used the right-of-use asset to produce inventories during that period. The obligations for such costs accounted for applying this Standard or Ind AS 2 are recognised and measured applying Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets.
Initial measurement of the lease liability
  1. At the commencement date, a lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date. The lease payments shall be discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the lessee shall use the lessee’s incremental borrowing rate.
  2. At the commencement date, the lease payments included in the measurement of the lease liability comprise the following payments for the right to use the underlying asset during the lease term that are not paid at the commencement date:
    1. fixed payments (including in-substance fixed payments as described in paragraph B42), less any lease incentives receivable;
    2. variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date (as described in paragraph 28);
 
  1. amounts expected to be payable by the lessee under residual value guarantees;
  2. the exercise price of a purchase option if the lessee is reasonably certain to exercise that option (assessed considering the factors described in paragraphs B37–B40); and
  3. payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
  1. Variable lease payments that depend on an index or a rate described in paragraph 27(b) include, for example, payments linked to a consumer price index, payments linked to a benchmark interest rate (such as LIBOR) or payments that vary to reflect changes in market rental rates.
Subsequent measurement

Subsequent measurement of the right-of-use asset

  • After the commencement date, a lessee shall measure the right- of-use asset applying a cost model, unless it applies the measurement model described in paragraph 35.

Cost model

  1. To apply a cost model, a lessee shall measure the right-of-use asset at cost:
    1. less any accumulated depreciation and any accumulated impairment losses; and
    2. adjusted for any remeasurement of the lease liability specified in paragraph 36(c).
  2. A lessee shall apply the depreciation requirements in Ind AS 16, Property, Plant and Equipment, in depreciating the right-of-use asset, subject to the requirements in paragraph 32.
  3. If the lease transfers ownership of the underlying asset to the lessee by the end of the lease term or if the cost of the right-of-use asset reflects that the lessee will exercise a purchase option, the lessee shall depreciate the right-of-use asset from the commencement date to the end of the useful life of the underlying asset. Otherwise, the lessee shall depreciate the right-of-use asset from the commencement date to

 

the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.

  1. A lessee shall apply Ind AS 36, Impairment of Assets, to determine whether the right-of-use asset is impaired and to account for any impairment loss identified.
Other measurement models
  1. [Refer Appendix 1].
  2. If right-of-use assets relate to a class of property, plant and equipment to which the lessee applies the revaluation model in Ind AS 16, a lessee may elect to apply that revaluation model to all of the right-of- use assets that relate to that class of property, plant and equipment.

Subsequent measurement of the lease liability

  • After the commencement date, a lessee shall measure the lease liability by:
  • increasing the carrying amount to reflect interest on the lease liability;
  • reducing the carrying amount to reflect the lease payments made; and
  • remeasuring the carrying amount to reflect any reassessment or lease modifications specified in paragraphs 39–46, or to reflect revised in-substance fixed lease payments (see paragraph B42).
  1. Interest on the lease liability in each period during the lease term shall be the amount that produces a constant periodic rate of interest on the remaining balance of the lease liability. The periodic rate of interest is the discount rate described in paragraph 26, or if applicable the revised discount rate described in paragraph 41, paragraph 43 or paragraph 45(c).
  2. After the commencement date, a lessee shall recognise in profit or loss, unless the costs are included in the carrying amount of another asset applying other applicable Standards, both:
    1. interest on the lease liability; and
    2. variable lease payments not included in the measurement of the

 

lease liability in the period in which the event or condition that triggers those payments occurs.

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