Advanced Accounting · AS 19 Leases

AS 19 Leases: Disclosure Requirements and Other Provisions

Updated 5 October 2026 · Fact-checked

AS 19 sets out which leases it covers and what lessees and lessors must disclose. It excludes leases of natural resources, licensing agreements and leases to use land. To answer, state the scope point, classify the lease as finance or operating, then list the matching disclosures: carrying amounts, maturity-wise payments, contingent rents and a general description of arrangements.

Understand Disclosure Requirements and Other Provisions of AS 19

AS 19 deals with how leases are accounted for and reported. Most of your marks in earlier lease topics come from calculations. This topic is mostly theory: what the standard covers, what it leaves out, and what must be disclosed in the financial statements.

Start with scope. AS 19 applies to agreements that give the right to use an asset for an agreed period in return for payments. It does not apply to three things: lease agreements to explore for or use natural resources (oil, gas, timber, metals and other mineral rights), licensing agreements for items such as films, video recordings, plays, manuscripts, patents and copyrights, and lease agreements to use lands. Examiners love this list, so learn all three.

Next, disclosure. The disclosure rules depend on two things: who you are (lessee or lessor) and the type of lease (finance or operating). That gives four sets of disclosures. All four share one common item: a general description of the significant leasing arrangements. Finance lease disclosures focus on carrying amounts and a reconciliation of total payments to present value. Operating lease disclosures focus on future minimum payments, expenses or income recognised, and, for lessors, the asset details.

For land, remember the scope exclusion: AS 19 does not apply to lease agreements to use lands. So the standard's finance or operating classification and its finance lease entries are not applied to a lease of land. AS 19 does not prescribe how such a lease is treated. The exclusion is limited to lease agreements to use lands. Leases of buildings, plant and machinery are not excluded and stay within AS 19. If one agreement covers both land and a building, only the land element is outside AS 19. The building element stays within it. In an exam answer, state the exclusion first, then say that AS 19 does not prescribe the treatment.

For transition, AS 19 came into effect for assets leased in accounting periods commencing on or after 1 April 2001. It was made mandatory in phases, depending on the class of enterprise: Level I enterprises first, and other enterprises later. For companies, the accounting standards are now notified under the Companies (Accounting Standards) Rules, 2006. This is a short factual point. A one-line mention is enough.

Key rules to remember

Scope exclusions: AS 19 does not apply to: (1) leases to explore for or use natural resources; (2) licensing agreements for films, video recordings, plays, manuscripts, patents, copyrights; (3) lease agreements to use lands; Learn as three items. Leases of machinery, buildings, vehicles and equipment remain inside the standard. Only lease agreements to use lands are excluded under the land item. In a combined land-and-building lease, only the land element is outside AS 19.
Lessee, finance lease: key disclosures: Net carrying amount by asset class + reconciliation of total minimum lease payments (MLP) to present value + MLP and PV for three time bands + contingent rents expensed + future minimum sublease receipts + general description; Time bands: not later than one year; later than one year and not later than five years; later than five years.
Lessor, finance lease: key disclosures: Reconciliation of gross investment to PV of MLP receivable + gross investment and PV for three time bands + unearned finance income + unguaranteed residual values + accumulated provision for uncollectible MLP + contingent rents recognised + general description; Gross investment = MLP receivable + unguaranteed residual value.
Lessee, operating lease: key disclosures: Future MLP under non-cancellable leases (three time bands) + future minimum sublease payments expected + lease payments recognised in the year (MLP and contingent rent shown separately) + general description; Only non-cancellable leases go into the future-payments table.
Lessor, operating lease: key disclosures: For each asset class: gross carrying amount, accumulated depreciation and depreciation recognised for the period + future MLP under non-cancellable leases (three time bands) + contingent rents recognised as income + general description; The lessor keeps the asset in its own books, so asset-level details are needed. The lessor depreciates the leased asset consistently with its normal depreciation policy for similar assets, as per AS 6. AS 28 applies to decide whether the asset is impaired. Do not present impairment as an AS 19 disclosure item.
General description of leasing arrangements: Basis of contingent rent + renewal or purchase options and escalation clauses + restrictions (on dividends, additional debt, further leasing); This appears in all four disclosure sets.

How to solve Disclosure Requirements and Other Provisions of AS 19 questions

Use this method for any theory or case question on AS 19 scope or disclosures.

1Read the question and identify the party: lessee or lessor.
2Check scope first. If the agreement is for natural resources, a licensing agreement or a lease agreement to use lands, say AS 19 does not apply, so its finance or operating classification and entries are not applied.
3For a land lease, add that AS 19 does not prescribe its treatment, and that a lease of a building, plant or machinery would still fall within AS 19.
4If it is in scope, classify the lease as finance or operating, using the risks and rewards test, and state the reason in one line.
5Pick the matching disclosure list (lessee or lessor, finance or operating).
6Write the disclosures as bullet points. Use the standard's wording for each item and group them as carrying amounts, payment tables, income or expense, and description.
7If numbers are given, build the maturity table for the three time bands and check that the present values add up to the total.
8Close with a one-line conclusion that links the answer to the facts in the question.

Quickest way: Four-box recall for disclosures and a step-mark format

When to use it: Use in the exam hall for theory answers and when MCQs ask what is or is not disclosed or covered.

Draw four boxes in your rough work: Lessee-Finance, Lessee-Operating, Lessor-Finance, Lessor-Operating.
In every box write the common item first: general description of leasing arrangements.
Finance boxes: carrying amount (lessee) or gross investment and unearned income (lessor), plus the reconciliation to PV and the three time bands.
Operating boxes: future MLP in three time bands plus payments recognised (lessee) or asset details (lessor).
For MCQs, eliminate options that mix parties. For example, unearned finance income belongs to a lessor, not a lessee.
For scope MCQs, look for the words mineral, licence, patent, film or land. These signal exclusion.
In written answers, use the sequence provision, facts, conclusion. State the AS 19 rule, apply it to the facts, then conclude.

Common mistakes in Disclosure Requirements and Other Provisions of AS 19

Applying finance lease entries to a lease of land.
Students assume every lease falls under AS 19 once the word lease appears.
Fix: Check the scope first. Lease agreements to use lands are excluded, so say so before doing any entry, and note that AS 19 does not prescribe the treatment.
Treating every lease connected with land as excluded, including leases of buildings or plant.
Students stretch the land exclusion beyond its words.
Fix: The exclusion covers lease agreements to use lands only. Leases of buildings, plant and machinery stay within AS 19, so classify them as finance or operating.
Listing only two of the three scope exclusions.
Natural resources and licensing are remembered, while land is forgotten, or the reverse.
Fix: Remember the order: natural resources, licensing agreements, lands.
Mixing lessee and lessor disclosures, such as putting unearned finance income in a lessee note.
The lists look similar and are learned together without labels.
Fix: Use the four-box method. Tie each item to the party that holds the asset or the receivable.
Forgetting the three time bands in the payment tables.
Students write total MLP only and skip the maturity split.
Fix: Always write: not later than one year; later than one year and not later than five years; later than five years.
Including cancellable operating leases in the future minimum payments table.
Students ignore the words non-cancellable in the rule.
Fix: Disclose future MLP only for non-cancellable operating leases.
Leaving out the general description of leasing arrangements.
It looks like a minor narrative point after the numeric items.
Fix: Add it as the last bullet in every disclosure list. Mention contingent rent basis, renewal or purchase options, escalation clauses and restrictions.

Worked examples

Example 1

Magna Ltd has the following agreements: (i) a 5-year lease of a CNC machine; (ii) a lease to extract coal from a mine; (iii) a 99-year lease of land for a factory; (iv) a licence to use a patented process. State which are covered by AS 19.

Show the solution

Check each agreement against the three exclusions in AS 19.
(i) The CNC machine is a normal asset lease. It is not excluded, so AS 19 applies.
(ii) The coal mine lease is an agreement to explore for or use natural resources and mineral rights. It is excluded.
(iii) This is a lease agreement to use lands, which AS 19 excludes. So the standard's finance or operating classification and finance lease entries are not applied to it. AS 19 does not prescribe its treatment. A lease of a building on the land would still fall within AS 19.
(iv) A licence to use a patent falls under licensing agreements for patents. It is excluded.

Answer: Only the lease of the CNC machine, item (i), is covered by AS 19. Items (ii), (iii) and (iv) are excluded from its scope. For the land lease, AS 19 does not prescribe the treatment.

Example 2

On 1 April 2025, Delta Ltd took a machine on a finance lease. It pays ₹1,00,000 at the end of each year for 3 years. The interest rate implicit in the lease is 10%. At inception, the PV factors for years 1, 2 and 3 are 0.9091, 0.8264 and 0.7513. The first payment is made on 31 March 2026. Show the lessee's disclosure of minimum lease payments (MLP) and their present value at 31 March 2026, by discounting the two remaining payments at 10% for 1 year and 2 years respectively.

Show the solution

For reference, the PV at inception (1 April 2025) used all three factors: ₹90,910 + ₹82,640 + ₹75,130 = ₹2,48,680. The 0.7513 factor applies only to that original 3-year valuation and is not needed at 31 March 2026.
At 31 March 2026 two payments remain: ₹1,00,000 on 31 March 2027 (1 year away) and ₹1,00,000 on 31 March 2028 (2 years away).
Total MLP outstanding = ₹1,00,000 × 2 = ₹2,00,000.
PV of the payment due in 1 year = ₹1,00,000 × 0.9091 = ₹90,910.
PV of the payment due in 2 years = ₹1,00,000 × 0.8264 = ₹82,640.
Total PV = ₹90,910 + ₹82,640 = ₹1,73,550.
Cross-check with the liability roll-forward: opening liability ₹2,48,680, interest for the year at 10% = ₹24,868, first instalment paid = ₹1,00,000. Principal repaid = ₹1,00,000 − ₹24,868 = ₹75,132. Closing liability = ₹2,48,680 − ₹75,132 = ₹1,73,548.
The ₹2 difference between ₹1,73,548 and ₹1,73,550 arises only from rounding the PV factors to four decimals. This page uses ₹1,73,550, the figure from the given factors.
Future finance charge (the reconciling difference) = ₹2,00,000 − ₹1,73,550 = ₹26,450.
Time bands: not later than one year: MLP ₹1,00,000, PV ₹90,910. Later than one year and not later than five years: MLP ₹1,00,000, PV ₹82,640. Later than five years: nil.

Answer: At 31 March 2026, total MLP ₹2,00,000 less future finance charge ₹26,450 equals PV of MLP ₹1,73,550. By time band, MLP is ₹1,00,000 and PV ₹90,910 within one year, and MLP ₹1,00,000 and PV ₹82,640 in the one-to-five-year band. Nothing falls after five years. The original PV at inception was ₹2,48,680. Rolling the liability forward (₹2,48,680 less principal repaid of ₹75,132) gives ₹1,73,548, and the ₹2 difference from ₹1,73,550 is due to rounding of the PV factors. Delta Ltd must also disclose the net carrying amount of the machine, contingent rents if any, and a general description of the arrangement. All figures use PV factors rounded to four decimals.

Exam tips

Scope questions are the easiest marks. Write all three exclusions and attach one example to each.
For a disclosure question, name the party and lease type first. This shows the examiner you are picking the right list.
Practise the three time bands until you can write them without thinking. They appear in all four lists.
If a case involves a lease agreement to use land, say that AS 19 excludes it, so you do not apply its finance or operating classification, and that AS 19 does not prescribe the treatment. If the case involves a building, plant or machinery lease, it stays within AS 19, so classify it.
In MCQs, watch for options that attach a lessor item (unearned finance income, gross investment) to a lessee. These are usually wrong.

Practice questions from AS 19 Leases

Disclosure Requirements and Other Provisions of AS 19 in other exams

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

Disclosure Requirements and Other Provisions of AS 19: frequently asked questions

Is a lease of land covered by AS 19?

No. AS 19 excludes lease agreements to use lands. So its finance or operating classification and entries are not applied to such a lease, and AS 19 does not prescribe how it is treated. Leases of buildings, plant and machinery remain within AS 19. If one agreement covers both land and a building, only the land element is outside AS 19.

What are the exclusions from AS 19 scope?

There are three. Lease agreements to explore for or use natural resources such as oil, gas, timber, metals and other mineral rights are excluded. Licensing agreements for films, video recordings, plays, manuscripts, patents and copyrights are excluded. Lease agreements to use lands are also excluded.

Do lessors and lessees make the same disclosures?

No. They share the general description of leasing arrangements. Lessees disclose carrying amounts and payment tables for their leases. Lessors disclose items such as gross investment, unearned finance income, unguaranteed residual values and, for operating leases, asset details.

From when is AS 19 effective?

AS 19 came into effect for assets leased in accounting periods commencing on or after 1 April 2001. It was made mandatory in phases, depending on the class of enterprise: Level I enterprises first, and other enterprises later. For companies, the accounting standards are now notified under the Companies (Accounting Standards) Rules, 2006. It is a short factual point, so one line in a theory answer is enough.