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Rental Deposit

Ajaya Kumar Majhi (Company Sscretary) (26 Points)

11 December 2009

I need to know calculation of NPV on rental deposit and booking loss under IFRS.

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7 Replies

C.A Rohit Gambhir (C.A) (275 Points)
Replied 12 December 2009

Could you pls discuss this issue in detail?

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Ajaya Kumar Majhi (Company Sscretary) (26 Points)
Replied 14 December 2009

I have a question about calculation of NPV on rental deposit and booking loss as per IFRS.

If we have paid Rs. 75 lacs advance to rent a building with a 3 year term with rent being Rs. 12.5 lacs per month, the PV @ 12% financing cost is about Rs. 53,38,354 lacs. Difference is Rs. 21, 61,648 lacs and we need to book a loss of 7, 20,549 lacs per year.

Suppose the agreement says that

1. Term is 3 years

2. Last three months rents are adjustable against deposit (which means that 37.5 lacs rent will be adjusted against deposit of 75 lacs). Will this help reduce the loss per month we need to take as per IFRS?

Would appreciate your thoughts

Best regards,

Ajay Kumar Majhi

C.A Rohit Gambhir (C.A) (275 Points)
Replied 16 December 2009

File Attached for your ref.

Attached File : 34 rental deposits.xls downloaded: 356 times

Hitesh Padliya (CA) (82 Points)
Replied 31 December 2009

Hi Rohit,

Good effort but I fill the accounting treatment will be little different. As the discounting does not have huge impact in profit and loss. Need to have a second thought on the same as the difference between deposit paid and present value shall be recognised as prepaid asset

C.A Rohit Gambhir (C.A) (275 Points)
Replied 31 December 2009

The basis here is not that the huge impact on the P&L but the point of time when event occured. And in the given case event of financing occured in the respective financial year hence impact would be in the respective financial year P&L. Could you pls refer proper sitation in the standard?

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Hitesh Padliya (CA) (82 Points)
Replied 02 January 2010

I have attached the detailed solution let me know in case of doubt

Attached File : 17 lease deposits accounting.xls downloaded: 306 times

C.A Rohit Gambhir (C.A) (275 Points)
Replied 03 January 2010

Dear Hitesh, I have already given a thought to this tyoe of treatment. But if standard allows this tyoe of treatment then in a way we are seggregating a asset in to two components one is present value and other is discounting element. Then purpose of the standard could not be served at all because standard provides an asset to be shown at its fair value which is its present value. For example an advance of say 100 crores recoverable after 3 years and having a present value of say 80 crores, needs to be recognised at 80 crores only in the balance sheet while in the treatment suggested by you you have shown an advance of 100 crores as 80 crores advance and 20 crores prepaid asset the total asset again in effect 100 crores in relation to that advance. The purpose of standard is not served. Request you to give it a thought once again.