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CA Intermediate · Advanced Accounting · AS 19 Leases

Bharat Logistics Ltd. enters into a finance lease for a truck. The fair value of the truck at the inception of the lease is ₹10,00,000. The present value of the minimum lease payments, calculated at the interest rate implicit in the lease, is ₹9,60,000. Bharat Logistics also pays ₹20,000 as legal and stamp costs directly attributable to arranging the lease. At what amount should the truck be recognised as an asset in the books of Bharat Logistics?

The truck should be recognised at ₹9,80,000. The lessee records the lower of fair value and present value of minimum lease payments, which is ₹9,60,000, and then adds its own initial direct costs of ₹20,000 to the asset amount, while the liability remains ₹9,60,000.

  1. A₹9,60,000
  2. B₹9,80,000Correct
  3. C₹10,00,000
  4. D₹10,20,000

Explanation

The lessee recognises the asset and liability at the lower of fair value (10,00,000) and the present value of minimum lease payments (9,60,000), which is 9,60,000. Initial direct costs of the lessee are added to the amount recognised as an asset, so the asset is 9,60,000 + 20,000 = 9,80,000. The liability stays at 9,60,000. Choosing 9,60,000 ignores the direct costs.

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