PRESENTED BY

GROUP NO 2

NAME

ROLL NUMBER

ASHRAY BHOSALE

11BB 09

KETAN KANDALKAR

11BB26

RIDDHIMA SAWANT

11BB54

ARCHANA MANDAL

11bb33

NEHA KUMBHAR

11bb 30

KIRAN PASI

11BB42

SHEJAL BAGAL

11BB02

SHELDON RODRIQUES

11bb50

RAKESH DHUMAL

11bb13

BHAGYASHREE POWALE

11bb46

ANKITA GHADI

11bb18

PYAIMAN SHAIKH

11bb58

KARAN SAKPAL

10bb24

ACCOUNTING STANDARDS?
AS 19

AS22

ACCOUNTING
STANDARDS

AS20

AS16

MEANING
Lease means transfer of rights to use assets for a specified period of time against the
consideration or a series of consideration.

Rights to Use Asset

Lessee

Lessor

Consideration

Lease

Meaning

Rent

It is a contract renting land,

Renting is an agreement where a
buildings, etc., to another; a
payment is made for the
contract or instrument conveying
temporary use of a good or
property to another for a
property owned by another person
specified period
or company

Flexibility

Not flexible

It is flexible

Time

Long term

Short term

Agreement

Pre determined and cannot be

broken without breaking the
lease

Pre determined and terms can be

changed

Written

Oral/Written

Both landlord and tenant have

stability

Not much stability

Long-Term financial
commitment with penalties (if
cancelled before contract expiry

Can be cancelled anytime with no

or limited (small) amount
penalties.

Mode of
agreement
Stability

Affordability

OBJECTIVE
The objective of this accounting standard is to prescribe for
lessees and lessors, the appropriate accounting policies and
disclosures in relation to all assets leased that may be finance
lease or operating lease.

Accounting provided in this AS is based on SUBSTANCE of

the transaction rather than on FORM.

FEATURES OF LEASE
Not Owner
No Asset In Balance Sheet
No Depreciation
Expenses
Return Assets

Natural Resources

Motion Picture Films

EXCLUSION

Use Of Land

Contract Of Services

Types Of
Lease

Financial
Lease

Operating
Lease

FINANCE LEASE
A finance lease is a lease that transfers substantially all the risks and
rewards incidental to ownership of an asset.

INDICATORS OF FINANCE LEASE

Transfer of ownership at the end of lease term.

Where lessee has purchased the option at very reduced rates and lessee is
certain to opt for this purchase option at the inception.
Where lease term covers substantial period of economic life of the asset.
Where amount paid as lease rentals in terms of P.V. is equal to the fair value of
the asset.
Where asset is of specialized nature and cannot be used by person other than
lessee without making major modifications.

INDICATORS OF FINANCE LEASE

Long term lease

Where lease transfers substantially all the risks and rewards incidental to
ownership. Title may or may not eventually be transferred.
Where lease cannot be cancelled or can be cancelled only if the lessor is
reimbursed for any losses.
Where lessee is required to take the risk of obsolescence.
Where cost of maintenance, taxes and insurance are to be incurred by
the lessee unless the contract so provide for.

ACCOUNTING TREATMENT IN CASE OF FINANCE LEASE

This can be explained with the help of an illustrationFair value of the machinery
`2,35,500
Lease Term
3 years
Lease Rent
`1,00,000
Guaranteed Residual Value by lessee
` 17000
Implicit Rate of Interest
16% p.a.
Method of Depreciation
SLM
The amount of depreciation charged is equal to ` 72,833

(2,35,500-17,000/3)

In the books of lessorThe asset given under a finance lease is recognized as a receivable at an
amount equal to the net investment in the lease.
Year

Lease
receivable

Installment

Finance Income Principal

(Lease
receivable x 16%)

Closing
Balance

2,35,500

1,00,000

37,680

62,320

1,73,180

1,73,180

1,00,000

27,710

72,290

1,00,890

1,00,890

1,00,000

16,140

83,860

17,030

Profit & Loss Account

Year 1
Year 2
Year 3

Balance Sheet

By Finance income 37,680 Asset (Year 1)

By Finance income 27,710
Lease Rent Receivable 2,35,500
By Finance income 16,140
(-)Lease rent received 62,320
1,73,180

In the books of lesseeThe asset taken on lease is recognized at an amount which would be lower of fair
value or P.V. of MLP from standpoint of lessee.
(Amount in `)
Year

Lease
Rental
payable

Installment

Finance
Repayment of
charges
liability
(Lease rental
payable x 16%)

Closing
balance

2,35,500

1,00,000

37,680

62,320

1,73,180

1,73,180

1,00,000

27,710

72,290

1,00,890

1,00,890

1,00,000

16,140

83,860

17,030

Charge in Profit and Loss

(Amount in `)

Year

Finance Charges

Depreciation

Total

37,680

72,833

1,10,513

27,710

72,833

1,00,543

16,140

72,834

88,974

GRAND TOTAL

3,00,030

Balance Sheet

Liability

Asset

1st year O/s Liability 2,35,500

Machinery 2,35,500
(-) Repayment of Liab. 62,320 1,73,180 (-)Depreciation 72,833 1,62,667

2nd year O/s Liability 1,73,180

Machinery 1,62,667
(-) Repayment of Liab. 72,290 1,00,890 (-)Depreciation 72,833 89,834
3rd year O/s Liability 1,00,890
Machinery
89,834
(-) Repayment of Liab. 83,860 17,030 (-)Depreciation 72,834

17,000

Sale and Lease-Back

A Particular Type Of Financial Lease
Occurs When A Company Sells An Asset It Already Owns

To Another Firm And Immediately Leases It From Them.

Two Sets Of Cash Flows Occur:

The Lessee Receives Cash Today From The

Sale.
The Lessee Agrees To Make Periodic Lease
Payments, Thereby Retaining The Use Of
The Asset.

Leveraged Leases
A leveraged lease is another type of financial lease
A three-sided arrangement between the lessee, the

lessor, and lenders

The lessor owns the asset and allows the lessee to use the

asset for free

The lessor borrows to partially finance the asset
The lessee has to repay the loans taken for the purpose
The lenders typically use a nonrecourse loan. This means
that the lessor is not obligated to the lender in case of a
default by the lessee.

Direct Lease
Two cases of direct lease
Asset is owned by the lessor

The lessor acquires the asset

In the first case the lessor and equipment supplier is the same

person- such a lease is called bipartite lease i.e., involving

two parties
In the second case three different parties are involved-

equipment supplier, lessor and lessee. Such a lease is called

tripartite lease i.e., involving three parties

WHAT IS OPERATING LEASE

?

Accounting treatment for operating lease:From Lessees point of view

Lease rental paid/payable by lessee should be recognized as an expense

on systematic basis.
Systematic basis means an expense should be recorded as and when

benefits are availed. When systematic basis cannot be identified then

straight-line method is used for recording the expenses.

From Lessors point of view

Lease rental received/receivable by lessor should be recognized as an

income on systematic basis. If same cannot be identified then straightline method is used for recording the incomes.

International Lease
When all parties of a lease agreement reside in the
same country it is a domestic lease

When a lease involves parties from different

countries it is called an international lease
International lease can be of two types
Import lease when the lessor and lessee reside in the same country

but the equipment supplier is from some other country

Cross border lease when the lessor and lessee are from two different
countries and the equipment supplier can be from either of the two
countries or from a third country

Financial lease v/s operating lease

YES

NO
Ownership transferred by the end of lease term

YES

Lessee to opt for purchase in end

YES

Lease term for major part of assets useful life

YES

Present value of minimum lease payments close to asset's fair value

NO

NO

NO

SALE AND LEASEBACK TRANSACTIONS

A sale and leaseback transaction involves the sale of an asset by the
vendor and leasing of the same asset back to the vendor.
SALE AND
LEASEBACK

SALE AND
FINANCE
LEASEBACK

SALE AND
OPERATING
LEASEBACK

Boot contracts
BOOT (Build, Own, Operate, Transfer) Contracts are

executed with the Government which involves private

sector entity constructing the infrastructure facility on the
land owned by the government.
period usually 20 to 25 years. This period is referred to as

the Concession Period after which ownership is

transferred to the government.

 BOOT transactions are outside the purview of finance lease

because of the following reasons It does not cover the majority of the useful life of the asset.
The element of ownership is totally missing in the contract.
Major portion of expenditure is incurred by the lessee.

Therefore, such transactions do not qualify for Finance

Lease.

INCOME TAX ISSUES

Since Income Tax Act does not recognize the concept of Finance lease, therefore,
there will be timing difference and an adjustment for deferred tax will be carried
out. However, in case of operating lease accounting treatment is same as per tax

laws. Hence ,there is no difference.

TREATMENT AS PER TAX LAWS

t
LEASE
RENT

Deductible
expenditure in the
hands of Lessee.

Taxable income
in the hands of
Lessor.
Lessor will be
entitled for
depreciation.

DISCLOSURE REQUIREMENTS
Disclosures in finance lease by the lessee(1) Assets acquired under finance lease as segregated from the assets
owned.
(2) For each class of assets, the net carrying amount at the balance sheet
date.
(3) Contingent rent recognized as an expense in the statement of Profit
& loss for the period.
(4)The total of future minimum sublease payments expected to be
received under non-cancellable subleases at the balance sheet date.
(5) Lease rentals payable should be shown as follows:PERIOD

AMOUNT

0-12 months

xxx

12-60 months

xxx

More than 60 months

xxx

Disclosure in financial lease by the lessor

(1) Unearned Finance Income
(2) The unguaranteed residual values accruing to the benefit of the
lessor.
(3) Contingent rent recognized as an income in the statement of Profit
& loss for the period.
(4) The total gross investment in the lease and the present value of minimum
Lease payments receivable should be shown as follows:-

PERIOD

AMOUNT

0-12 months

xxx

12-60 months

xxx

More than 60 months

xxx

Disclosures in operating lease by the lessor(1) Accounting policy adopted in respect of initial direct costs.
(2) For each class of assets, the gross carrying amount, the accumulated

depreciation and accumulated impairment losses at the balance sheet date.

(3) A general description of the significant leasing arrangements.
(4) Contingent rent recognized as an income in the statement of Profit & Loss
for the period.
(5) Lease rentals should be shown as follows:PERIOD

AMOUNT

0-12 months

xxx

12-60 months

xxx

More than 60 months

xxx

Disclosures in operating lease by the lessee(1) A general description of the significant leasing arrangements.
(2) The total of future minimum sublease payments expected to be received

under non-cancellable subleases at the balance sheet date.

(3) Lease payments recognized in the statement of Profit & Loss for the period.
(4) Lease rentals payable should be shown as follows:-

PERIOD

AMOUNT

0-12 months

xxx

12-60 months

xxx

More than 60 months

xxx

Thank
You