Ind as 116

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mayank chhajed

article

60 Points Joined December 2010

there is a lease for 5 years

lessee has the option for cancellation of the same

however lessee intention is use it for 5 years and not to cancel it before that

whether this cancelable lease will be a short term or long term

Replies (6)

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

I could not find the standard, but from IndAS 17, an operating lease is short term and finance leases are for long term. Then, I checked IFRS 16 which is similar to INDAS 116, and it mentions that any lease agreement which is lesser than 12 months, and no intention to extend will not recognise an asset and it’s treatment is different. Only short term leases with an intention to extend contract period are classified as leases.

To answer your query, from the above, short term and long term lease contracts which has an option (will be exercised) to extend or not to terminate contract is recognised as a lease contract. To be more precise, cancellable lease is not a lease or long term; non cancellable leases with a mind to further extend the contract or not to terminate is a Lease. Any lease contract which has purchase option is not a short term lease, but long term lease.

Vinit Moyal

30 Points Joined December 2008

Plz check whether lessor also has lock in or not. if lessor can cancel at any point of time, then its short term lease. if leassor also locked for the tenure, then that tenur will be considered and will be assessed for 116 if lock in is more than 12 months

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

The funny thing is MCA did not publish any information. What ever the assumption are, they are unreliable.

Rohit Agarwal

64 Points Joined April 2017

As per IndAs116 if lessee has intention to use it for 5 years it should record it as long term lease recording the lease liability and Right to use asset