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CMA Final · Corporate Financial Reporting · Leases (Ind AS 116)

Kaveri Textiles Ltd leases a machine for 3 years. At commencement the lease liability is measured at Rs 2,48,700 using an incremental borrowing rate of 10% per annum. A fixed payment of Rs 1,00,000 is made at the end of each year. What is the lease liability carrying amount immediately after the first payment is made?

The liability is Rs 1,73,570. Interest of Rs 24,870 (10% of Rs 2,48,700) is added, giving Rs 2,73,570, and the Rs 1,00,000 payment is then deducted. Ignoring the interest accretion would wrongly give Rs 1,48,700.

  1. ARs 1,48,700
  2. BRs 1,73,570Correct
  3. CRs 1,23,830
  4. DRs 2,73,570

Explanation

Interest for year 1 = 10% x 2,48,700 = 24,870, so the liability before payment is 2,73,570. Deducting the payment of 1,00,000 gives 1,73,570. Rs 1,48,700 ignores the interest accretion. Rs 1,23,830 wrongly deducts the interest as well as the payment.

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