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IAI Actuarial Core Principles · Business Finance · Regulation of financial reporting of incorporated entities

Which of the following best describes a feature that distinguishes Ind AS 116 Leases, as applied to a lessee, from the older Accounting Standard AS 19 treatment of operating leases?

Under Ind AS 116, a lessee recognises a right-of-use asset and a lease liability for most leases, with exemptions for short-term and low-value leases. This contrasts with AS 19, where operating lease rentals were simply expensed straight-line and kept off the balance sheet.

  1. AOperating lease rentals continue to be expensed on a straight-line basis with no balance sheet impact
  2. BLessees recognise a right-of-use asset and a lease liability for most leases, other than short-term and low-value leasesCorrect
  3. CLessees recognise only a lease liability and no asset
  4. DLessees must treat all leases as finance leases without any exemptions
  5. Lessees recognise the lease only when title passes at the end of the term

Explanation

Ind AS 116 uses a single lessee model: a right-of-use asset and a lease liability are recognised on the balance sheet, with optional exemptions for short-term and low-value leases. AS 19 kept operating leases off the balance sheet with expensed rentals. Saying no exemptions exist is wrong.

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