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CA Final · Financial Reporting · Ind AS 116 Leases

Ganga Retail Ltd enters a contract giving it the right to use a specific warehouse for five years in exchange for monthly payments. A trainee asks whether the contract is a lease under Ind AS 116. Which description matches the definition of a lease in the standard?

A lease is a contract, or part of a contract, that conveys the right to use an underlying asset for a period of time in exchange for consideration. Ownership transfer and advance payment are not part of the definition.

  1. AA contract that transfers legal ownership of an asset to the customer at the end of the contract
  2. BA 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 considerationCorrect
  3. CA contract under which the supplier provides services using any asset of its choice, with payments based on output
  4. DA contract that conveys the right to use an asset for a period of time only if the payments are made in advance

Explanation

Appendix A defines a lease as a contract, or part of a contract, that conveys the right to use an underlying asset for a period of time in exchange for consideration. Transfer of ownership is not required, and advance payment is not a condition, so the other options misdescribe the definition.

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