Skip to content

CA Intermediate · Advanced Accounting · AS 19 Leases

Anand Traders Ltd. took a showroom on a 3-year operating lease. Rentals payable at the end of each year are ₹1,00,000, ₹1,20,000 and ₹1,40,000. The increases are fixed and are not linked to expected inflationary cost increases of the lessor, and no other systematic basis is more representative of the time pattern of the lessee's benefit. What should Anand Traders charge to the Statement of Profit and Loss for year 1, and what is the position at the year-end?

The year-1 charge is ₹1,20,000 with ₹20,000 shown as outstanding lease rent payable. AS 19 requires operating lease rentals to be expensed on a straight-line basis, so total rent of ₹3,60,000 is spread equally over three years. Since only ₹1,00,000 is paid, the balance is a liability.

  1. A₹1,20,000 expense, with ₹20,000 shown as outstanding lease rent payableCorrect
  2. B₹1,00,000 expense, with no outstanding liability
  3. C₹1,20,000 expense, with ₹20,000 shown as prepaid rent
  4. D₹1,40,000 expense, with ₹40,000 shown as outstanding lease rent payable

Explanation

AS 19 requires operating lease payments to be recognised on a straight-line basis over the lease term. Total rent is 3,60,000, so the annual charge is 3,60,000 ÷ 3 = ₹1,20,000. Only ₹1,00,000 is paid in year 1, so ₹20,000 remains outstanding. Treating it as prepaid reverses the direction, as expense exceeds payment.

Did you get it right without looking?

One question tells you little. A timed set on AS 19 Leases shows your real accuracy, how long you take and where you lose marks.

Practise AS 19 LeasesFree diagnostic mock

More AS 19 Leases questions