Skip to content

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

Kaveri Traders Ltd entered into a contract with Mehta Storage Pvt Ltd giving it the right to use a specified warehouse for 5 years in exchange for fixed monthly payments. Using the definition in Ind AS 116, how should the contract be viewed?

The contract is a lease. Ind AS 116 defines a lease as a contract, or part of one, conveying the right to use an underlying asset for a period of time in exchange for consideration. Transfer of ownership is not required.

  1. AIt is a lease only if ownership of the warehouse transfers at the end
  2. BIt is a lease, because it conveys the right to use an asset for a period of time in exchange for considerationCorrect
  3. CIt is not a lease, because the warehouse is not legally transferred
  4. DIt is a lease only if the term exceeds the asset's economic life

Explanation

Ind AS 116 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 warehouse is identified, the term is 5 years and payments are made. Transfer of ownership is not required, so the other options add conditions not in the definition.

Did you get it right without looking?

One question tells you little. A timed set on Leases (Ind AS 116) shows your real accuracy, how long you take and where you lose marks.

Practise Leases (Ind AS 116)Free diagnostic mock

More Leases (Ind AS 116) questions