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CMA Final · Corporate Financial Reporting · Leases (Ind AS 116)

A lessee under Ind AS 116 pays Rs 5,00,000 during the year against its lease liability, of which Rs 80,000 is the interest portion. How should the interest portion be classified in the lessee's statement of cash flows?

The interest portion of the lease liability payment is shown under financing activities. Ind AS 7 requires interest paid to be treated as a financing item only, and Ind AS 116 says so for lease interest. The IFRS option of treating interest paid as operating is not available in India.

  1. AOperating activities, because lease payments relate to running the business
  2. BFinancing activities, as Ind AS 7 requires interest paid to be treated as financing onlyCorrect
  3. CInvesting activities, because the right-of-use asset is acquired
  4. DEither operating or financing activities, at the lessee's option

Explanation

Ind AS 116 specifies that cash payments for the interest portion of the lease liability are classified as financing activities applying Ind AS 7. Unlike IAS 7, Ind AS 7 gives no choice of operating treatment for interest paid, so the optional-classification choice is wrong.

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