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CA Intermediate · Advanced Accounting · AS 19 Leases

Arjun Logistics Ltd. took a truck on a finance lease on 1 April 2025. The fair value of the truck is Rs 9,00,000 and the present value of minimum lease payments, at the interest rate implicit in the lease, is Rs 8,60,000. Arjun incurred initial direct costs of Rs 15,000 on negotiating the lease. At what amount should the asset and liability be recognised in Arjun's books at inception under AS 19?

The liability is recorded at Rs 8,60,000, the lower of fair value and present value of minimum lease payments. The asset is recorded at Rs 8,75,000 because the lessee's initial direct costs of Rs 15,000 are added to the asset amount but not to the liability.

  1. AAsset Rs 9,15,000; liability Rs 9,00,000
  2. BAsset Rs 8,75,000; liability Rs 8,60,000Correct
  3. CAsset Rs 8,60,000; liability Rs 8,60,000
  4. DAsset Rs 9,00,000; liability Rs 9,00,000

Explanation

The lessee records the lower of fair value (9,00,000) and present value of minimum lease payments (8,60,000), i.e. Rs 8,60,000, as both asset and liability. Initial direct costs of Rs 15,000 are added to the asset only: 8,60,000 + 15,000 = Rs 8,75,000. Adding the costs to the liability or using fair value is wrong.

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