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

Under Ind AS 116, as notified in India, in which section of the lessee's cash flow statement are cash payments for the interest portion of a lease liability classified?

Interest on a lease liability is shown under financing activities. Ind AS 7 requires interest paid to be treated as financing only, and Ind AS 116 has been modified accordingly. The choice allowed under IFRS, operating or financing, does not exist for Indian reporting entities.

  1. AOperating activities, because interest is a finance cost charged to profit or loss
  2. BInvesting activities, because the right-of-use asset is a long-term asset
  3. CFinancing activities, as Ind AS 7 requires interest paid to be treated as financingCorrect
  4. DEither operating or financing activities, at the option of the lessee

Explanation

Ind AS 116 specifies that cash payments for the interest portion of the lease liability are classified as financing activities applying Ind AS 7. IFRS 16 allows an option through IAS 7, but Ind AS 7 permits interest paid only as financing. The option in the last choice is therefore not available in India.

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