Corporate Financial Reporting · Leases (Ind AS 116)

Ind AS 116 Presentation and Disclosure Requirements

Updated 11 October 2026 · Fact-checked

Ind AS 116 presentation rules tell a lessee to show right-of-use assets and lease liabilities separately (or disclose the line items), show lease interest apart from depreciation, and split lease cash flows between financing and operating. A lessor shows operating-lease assets by nature and discloses them separately under Ind AS 16.

Understand Presentation and Disclosure Requirements

Recognition and measurement decide the numbers. Presentation and disclosure decide where those numbers appear and what users are told about them. Ind AS 116 states the objective in both cases: the notes, together with the primary statements, must let users assess the effect of leases on financial position, financial performance and cash flows (paragraph 51 for lessees, paragraph 89 for lessors).

Lessee, balance sheet (paragraph 47). You must either present on the face of the balance sheet, or disclose in the notes, right-of-use assets separately from other assets and lease liabilities separately from other liabilities. If you do not show right-of-use assets separately, you include them in the same line item as the underlying assets would be if owned, and disclose which line items hold them. If you do not show lease liabilities separately, you disclose which line items include them.

Lessee, profit and loss (paragraph 49). Interest expense on the lease liability is shown separately from the depreciation charge on the right-of-use asset. Interest is part of finance costs, which Ind AS 1 requires to be presented separately. So the lease cost is no longer a single rent line.

Lessee, cash flows (paragraph 50). Principal repayments go in financing activities. Interest goes in financing activities, applying Ind AS 7 rules for interest paid. Short-term lease payments, low-value asset lease payments and variable lease payments not included in the lease liability go in operating activities.

Lessor (paragraphs 88 and 95). A lessor presents assets under operating leases according to their nature, and applies Ind AS 16 disclosures, separating each class of PPE into assets subject to operating leases and assets not subject to them. Where a lessee's right-of-use assets meet the definition of investment property, Ind AS 40 disclosures apply and some paragraph 53 disclosures are not needed (paragraph 56).

On the old Ind AS 17 comparison: the lessee no longer splits leases into finance and operating for presentation. Almost every lease gives an asset, a liability, depreciation and interest. The lessor keeps the finance/operating split.

Key rules to remember

Lessee balance sheet (para 47): Right-of-use assets and lease liabilities: present separately OR disclose in notes; If not separate, ROU assets sit in the line item of the equivalent owned asset, and you disclose which line items hold ROU assets and lease liabilities.
Lessee profit and loss (para 49): Depreciation on ROU asset and interest on lease liability shown separately; Interest is part of finance costs.
Lessee cash flows (para 50): Principal → financing; interest → financing (per Ind AS 7); short-term, low-value and non-included variable payments → operating; Rule applies to the lessee only.
Lessor operating lease assets (paras 88, 95): Show by nature of asset; disaggregate each PPE class into leased-out and owned; Disclosures follow Ind AS 16.
Interest on lease liability: Interest = opening lease liability × discount rate; Illustration: ₹4,50,000 × 3% = ₹13,500 in Year 1.

How to solve Presentation and Disclosure Requirements questions

Use this order for any presentation or disclosure question on leases.

1Identify whether the entity is lessee or lessor. The rules differ.
2For a lessee, list the items: ROU asset, lease liability, depreciation, interest, cash payments.
3Decide the balance sheet position: separate line or included in a line with disclosure of which line.
4Place the P&L items: depreciation separately from interest; interest under finance costs.
5Classify each cash payment: principal and interest to financing; short-term, low-value and non-included variable payments to operating.
6For a lessor, show operating-lease assets by nature and disaggregate PPE under Ind AS 16.
7State the objective of disclosure in one line and give the numbers asked for, with workings.

Quickest way: Three-statement placement check

When to use it: For MCQs and short classification questions.

Ask: lessee or lessor?
Balance sheet: separate or disclose the line item.
P&L: depreciation and interest, never one rent line.
Cash flow: lease liability payments are financing; short-term, low-value and non-included variable payments are operating.

Common mistakes in Presentation and Disclosure Requirements

Showing the whole lease payment as operating cash outflow for a normal lease.
Habit from the old operating-lease rent treatment.
Fix: Split the payment: principal and interest go to financing; only short-term, low-value and non-included variable payments go to operating.
Presenting a single 'lease rent' expense in the P&L.
Carrying over Ind AS 17 operating-lease thinking.
Fix: Show depreciation of the ROU asset and interest on the lease liability separately, with interest in finance costs.
Thinking the ROU asset must always appear as its own line on the face of the balance sheet.
Ignoring the either/or option in paragraph 47.
Fix: State that you may disclose in notes instead, but then say which line items include them.
Applying lessee presentation to the lessor.
Mixing up the two sets of paragraphs.
Fix: Remember that the lessor shows operating-lease assets by nature and applies Ind AS 16 disclosure.
Computing interest on the lease payment instead of the opening liability.
Confusing the payment with the balance.
Fix: Interest = opening liability × rate; the payment then reduces the liability.

Worked examples

Example 1

A lessee has a lease liability of ₹4,50,000 at the start of Year 1, a 3% rate, and pays ₹98,260 at year end. The ROU asset of ₹2,50,000 is depreciated straight-line over 5 years. Show the P&L charges and cash flow classification for Year 1.

Show the solution

Interest = ₹4,50,000 × 3% = ₹13,500.
Depreciation = ₹2,50,000 ÷ 5 = ₹50,000.
Both are shown separately in P&L; interest is part of finance costs.
Principal repaid = ₹98,260 − ₹13,500 = ₹84,760.
Closing liability = ₹4,50,000 − ₹84,760 = ₹3,65,240.

Answer: P&L: depreciation ₹50,000 and finance cost ₹13,500, shown separately. Cash flow: principal ₹84,760 and interest ₹13,500 are financing activities. Closing liability ₹3,65,240.

Example 2

Sunrise Ltd, a lessee, does not show ROU assets separately on its balance sheet. It leases a building and pays ₹60,000 for a 10-month lease and ₹20,000 as variable payments not in the liability. How should it present and classify?

Show the solution

Under paragraph 47, the ROU assets are included in the line item where the owned building would appear.
Sunrise must disclose which line items include the ROU assets, and which include lease liabilities if not separate.
Check the 10-month lease: it is a short-term lease, so payments are operating activities.
Variable payments not in the liability are also operating activities.

Answer: ROU assets sit in the building's line item with disclosure of the line items. The ₹60,000 short-term lease payment and ₹20,000 variable payment are classified as operating cash outflows.

Exam tips

Write the paragraph logic in plain words: objective, balance sheet, P&L, cash flow.
Always show interest and depreciation as two separate numbers with workings.
In case-based MCQs, check first whether the payment is principal, interest, short-term, low-value or variable.
For lessor questions, mention separate Ind AS 16 disclosure for assets under operating leases.
When asked to compare with Ind AS 17, stress that lessee finance/operating split no longer applies.

Practice questions from Leases (Ind AS 116)

Presentation and Disclosure Requirements in other exams

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

Presentation and Disclosure Requirements: frequently asked questions

Must a lessee show right-of-use assets on the face of the balance sheet?

Not necessarily. Paragraph 47 lets the lessee present them separately or disclose them in the notes. If not separate, include them in the line item of equivalent owned assets and disclose which line items hold them.

Where are lease payments shown in the cash flow statement?

Principal and interest portions of the lease liability payments are financing activities. Short-term lease payments, low-value asset lease payments and variable payments not included in the liability are operating activities.

How is lease interest shown in the profit and loss?

Interest on the lease liability is presented separately from the depreciation of the ROU asset. It forms part of finance costs.

What does a lessor disclose for operating leases?

It presents the underlying assets by their nature and applies Ind AS 16 disclosures, separating each PPE class into assets subject to operating leases and those not.