Financial Reporting · Ind AS 116 Leases

Ind AS 116 Leases: Presentation, Disclosure and Transition

Updated 5 October 2026 · Fact-checked

This topic covers how lessees and lessors present and disclose leases, and how entities moved from Ind AS 17 to Ind AS 116 (annual periods beginning on or after 1 April 2019). To solve a question, pick the transition approach, measure the lease liability and right-of-use asset at the date of initial application, then list the disclosures.

Understand Presentation, Disclosure and Transition

Ind AS 116 replaced Ind AS 17. A lessee now shows almost every lease on the balance sheet as a right-of-use (ROU) asset and a lease liability. Presentation and disclosure rules tell you where these appear and what the notes must explain.

Presentation (lessee). Show ROU assets and lease liabilities separately on the face of the balance sheet, or disclose which line items include them. An ROU asset that meets the definition of investment property is shown as investment property. In the statement of profit and loss, show interest on the lease liability (in finance costs) separately from depreciation of the ROU asset. In the cash flow statement, the principal portion of lease payments goes to financing activities. Interest is classified as operating or financing activities as per Ind AS 7. Short-term, low-value and variable lease payments not included in the lease liability go to operating activities.

Disclosure. A lessee discloses ROU assets by class, additions, depreciation by class, interest on lease liabilities, expense on short-term and low-value leases, variable lease payments not in the liability, sublease income, total cash outflow for leases, and sale and leaseback gains or losses. It also gives a maturity analysis of lease liabilities, separate from other financial liabilities. A lessor discloses lease income, selling profit or loss, finance income on the net investment, and maturity analyses of lease payments receivable.

Transition. Ind AS 116 applies to annual periods beginning on or after 1 April 2019. The date of initial application (DIA) is the start of the annual period in which you first apply it. You choose between full retrospective application and the modified retrospective approach. Under full retrospective application, Ind AS 116 is applied as if it had always been in effect (Ind AS 8), and comparatives are restated. Under the modified retrospective approach, comparatives are not restated, and the cumulative effect is adjusted in opening retained earnings at DIA, as applicable.

In the modified approach, the lease liability is the present value of the remaining lease payments, discounted at the lessee's incremental borrowing rate at DIA. For each lease you choose how to measure the ROU asset. Option (a): the carrying amount as if Ind AS 116 had been applied since the commencement date, but discounted using the lessee's incremental borrowing rate at DIA. Option (b): equal to the lease liability, adjusted for prepaid or accrued lease payments. Option (b) usually gives no retained earnings impact. The retained earnings effect arises mainly under option (a).

Leases previously classified as finance leases (lessee). When you use the modified retrospective approach, there is no remeasurement. The ROU asset and lease liability at DIA are the carrying amounts of the lease asset and finance lease liability immediately before DIA under Ind AS 17. You apply Ind AS 116 from then on. This carry-over is part of the modified approach only. Under full retrospective application, you do not use it.

Lessors. Generally no adjustments on transition, except for an intermediate lessor with subleases, who reassesses sublease classification at DIA by reference to the ROU asset.

Versus IFRS 16. Ind AS 116 differs from IFRS 16 on a limited number of points. One point you can state is the Indian effective date (1 April 2019, against 1 January 2019 for IFRS 16). For any other differences, refer to the latest ICAI study material and do not guess.

Key rules to remember

Lease liability at DIA (modified retrospective): Lease liability = Σ [Remaining lease payment ÷ (1 + r)^t]; r is the lessee's incremental borrowing rate at DIA. Include only payments for the remaining lease term.
ROU asset, option (b): ROU asset = Lease liability + prepaid lease payments − accrued lease payments; Prepaid or accrued amounts are those recognised in the balance sheet immediately before DIA.
ROU asset, option (a): ROU asset = carrying amount as if Ind AS 116 had been applied since commencement date, but discounted using the lessee's incremental borrowing rate at DIA; Chosen lease by lease. This can create a retained earnings adjustment.
Previously finance leases (lessee, modified retrospective approach): ROU asset and lease liability at DIA = Ind AS 17 carrying amounts immediately before DIA; Applies when the modified retrospective approach is used. No remeasurement and no retained earnings adjustment at transition. Not used under full retrospective application.
Effective date: Annual periods beginning on or after 1 April 2019; DIA is the start of the annual period of first application.
Subsequent lease liability: Closing liability = Opening + Interest at r − Payments; Interest goes to finance costs; ROU depreciation is shown separately.

How to solve Presentation, Disclosure and Transition questions

Use this order for any transition or disclosure question on Ind AS 116.

1Identify who you are: lessee or lessor. Lessors generally make no transition adjustment, except for intermediate lessors with subleases.
2Fix the DIA. It is the start of the annual period in which Ind AS 116 is first applied.
3Check the old classification under Ind AS 17. When the modified retrospective approach is used, carry over the old asset and liability amounts for a lessee's finance lease. Stop there. Under full retrospective application, Ind AS 116 is applied as if always in effect, so this carry-over does not apply.
4Choose the approach: full retrospective or modified retrospective. Note that comparatives are not restated under the modified approach.
5For an old operating lease under the modified approach, compute the lease liability: present value of remaining payments at the incremental borrowing rate at DIA.
6Compute the ROU asset using option (a) or (b). Under option (b), add prepaid rent and deduct accrued rent.
7Post the entry and state any retained earnings effect. Then show presentation (separate lines, interest versus depreciation, cash flow split).
8Add the required disclosures or the IFRS 16 difference the question asks for, in short bullets.

Quickest way: Four-line transition check

When to use it: Use this when a case gives lease details, the modified retrospective approach is used, and the question asks for the opening entry or a short note on transition.

Write 'Finance lease before? Carry over old amounts (modified approach).' If yes, finish the entry.
Otherwise write 'Liability = PV of remaining payments at IBR at DIA'.
Write 'ROU = liability ± prepaid or accrued rent' (option b) unless the question demands option (a).
Add one line on disclosure: weighted average IBR applied and no restatement of comparatives.

Common mistakes in Presentation, Disclosure and Transition

Remeasuring a lessee's old finance lease at the incremental borrowing rate at DIA under the modified retrospective approach.
Students apply the operating lease method to every lease.
Fix: Under the modified approach, for finance leases, use the Ind AS 17 carrying amounts of the asset and liability immediately before DIA.
Restating comparatives under the modified retrospective approach.
Students confuse it with full retrospective application under Ind AS 8.
Fix: Under the modified approach, comparatives stay as reported. Adjust opening retained earnings at DIA only where required, as under option (a).
Discounting at the rate implicit at commencement for an operating lease transition.
Students recall the normal initial measurement rule.
Fix: On modified retrospective transition, the lessee uses its incremental borrowing rate at DIA.
Forgetting to adjust prepaid or accrued rent under option (b).
Students set ROU asset equal to the liability by habit.
Fix: Add prepaid rent and deduct accrued rent, then check the entry balances.
Showing lease interest and depreciation as one expense, or putting all lease payments in financing cash flows.
Students think of the old single rent expense.
Fix: Show interest and depreciation separately. The principal portion goes to financing activities. Interest is classified as operating or financing as per Ind AS 7. Short-term, low-value and variable lease payments not included in the liability go to operating activities.
Saying Ind AS 116 allows the fair value model for ROU assets that are investment property.
Students copy the IAS 40 position.
Fix: Ind AS 40 permits only the cost model, so those ROU assets are carried at cost.

Worked examples

Example 1

Case: Sundaram Ltd leases machinery under a lease classified as a finance lease under Ind AS 17. At 31 March 2019 the lease asset's carrying amount was ₹40,00,000 and the finance lease liability was ₹32,00,000. Sundaram adopts Ind AS 116 with a DIA of 1 April 2019, using the modified retrospective approach. What are the opening amounts?

Show the solution

Sundaram is the lessee and the lease was a finance lease under Ind AS 17. It uses the modified retrospective approach, so the carry-over rule applies.
On transition, the ROU asset equals the carrying amount of the lease asset immediately before DIA: ₹40,00,000.
The lease liability equals the carrying amount of the finance lease liability immediately before DIA: ₹32,00,000.
No remeasurement and no retained earnings adjustment arise.
From 1 April 2019, Sundaram applies Ind AS 116 to the ROU asset (depreciation) and to the liability (interest at the existing rate and payments).

Answer: ROU asset ₹40,00,000 and lease liability ₹32,00,000 at 1 April 2019. No remeasurement or retained earnings adjustment.

Example 2

Case: Meera Ltd leases a warehouse under an Ind AS 17 operating lease. At the DIA of 1 April 2019, 3 years remain in the lease term, with ₹10,00,000 payable at the end of each year. Its incremental borrowing rate is 10%. Prepaid rent of ₹1,00,000 is in the balance sheet. Meera uses the modified retrospective approach with ROU asset equal to the lease liability adjusted for prepaid rent (option (b)), and depreciates the ROU asset over the remaining lease term of 3 years. Give the opening entry and the year 1 interest and depreciation.

Show the solution

Discount factors at 10%: 0.909091, 0.826446, 0.751315. Sum = 2.486852.
Lease liability = ₹10,00,000 × 2.486852 = ₹24,86,852.
ROU asset = ₹24,86,852 + prepaid rent ₹1,00,000 = ₹25,86,852.
Entry: Dr ROU asset ₹25,86,852; Cr Lease liability ₹24,86,852; Cr Prepaid rent ₹1,00,000. No retained earnings impact under option (b).
Year 1 interest = 10% × ₹24,86,852 = ₹2,48,685.
Year 1 depreciation (straight-line over the remaining lease term of 3 years) = ₹25,86,852 ÷ 3 = ₹8,62,284.
Closing liability = ₹24,86,852 + ₹2,48,685 − ₹10,00,000 = ₹17,35,537.

Answer: ROU asset ₹25,86,852; lease liability ₹24,86,852; prepaid rent derecognised ₹1,00,000. Year 1 interest ₹2,48,685; depreciation ₹8,62,284; closing liability ₹17,35,537.

Exam tips

Read the lease's old classification and the transition approach first. A lessee's finance lease under the modified approach means carry-over, which is the shortest answer.
Name the approach and state whether comparatives are restated. Examiners award marks for this statement.
Show a discount table for the present value working and check that the entry balances.
For disclosure questions, group your points as ROU assets, expenses, cash outflow, maturity analysis and sale and leaseback. This avoids missing items.
For IFRS 16 differences, state the effective date confidently. Refer to the latest ICAI study material for any other points and do not invent any.

Practice questions from Ind AS 116 Leases

Presentation, Disclosure and Transition in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Presentation, Disclosure and Transition: frequently asked questions

What is the modified retrospective approach under Ind AS 116?

You apply the standard from the date of initial application without restating comparatives. The lease liability is the present value of remaining payments at the incremental borrowing rate at DIA. You choose the ROU asset measure lease by lease.

How are leases previously classified as finance leases treated on transition?

When the modified retrospective approach is used, the ROU asset and lease liability at DIA for a lessee are the Ind AS 17 carrying amounts immediately before DIA. There is no remeasurement. Ind AS 116 applies from that date. Under full retrospective application, Ind AS 116 is applied as if it had always been in effect, so this carry-over does not apply.

What is the effective date of Ind AS 116?

It applies to annual reporting periods beginning on or after 1 April 2019. The DIA is the start of the annual period in which an entity first applies it.

How does Ind AS 116 differ from IFRS 16?

The differences are limited. One point you can state is the effective date: IFRS 16 was effective from 1 January 2019, while Ind AS 116 applies from 1 April 2019. For any other differences, check the latest ICAI study material.