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CA Final · Financial Reporting · Ind AS 116 Leases

Bharat Logistics Ltd. signs a contract with a service provider for 5 years. The contract conveys to Bharat the right to use a specific dedicated container yard, along with yard security services, in exchange for a fixed monthly fee. The CFO wants to apply the definition of a lease in Ind AS 116. Which statement correctly reflects that definition?

A lease is a contract, or part of a contract, that conveys the right to use an asset, the underlying asset, for a period of time in exchange for consideration. It need not transfer title or exceed twelve months, and a contract may contain a lease component alongside services.

  1. AA lease is any contract that provides services involving an asset for a period of time
  2. BA lease is a contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for considerationCorrect
  3. CA lease is a contract that transfers legal title of an asset to the customer in exchange for consideration
  4. DA lease is a contract of more than 12 months that conveys the right to use an asset in exchange for consideration

Explanation

Appendix A defines a lease as a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. The words 'part of a contract' matter because the yard component may be a lease while security services are not. Title transfer and a 12-month minimum are not in the definition.

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