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CA Final · Financial Reporting · Ind AS 116 Leases

Orion Retail Ltd. signs a contract under which it obtains the right to use a specified warehouse for five years in exchange for fixed monthly payments. Which description matches the definition of a lease in Ind AS 116?

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. Orion's warehouse contract fits this because it gives the right to use a specified asset for five years for payments.

  1. AA contract that transfers ownership of an asset in exchange for consideration
  2. BA contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for considerationCorrect
  3. COnly a contract that transfers substantially all risks and rewards of ownership
  4. DA contract under which the lessor provides services using its own employees and assets

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. Transfer of ownership and the risks-and-rewards test are not the definition. A services contract does not convey a right to use an asset.

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