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CA Final · Financial Reporting · Ind AS 116 Leases

Which of the following correctly states the definition of a lease in Ind AS 116 as applied by Meridian Logistics Ltd while assessing a vehicle-hire contract?

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. Ownership transfer or risk-and-reward transfer is not part of the definition.

  1. AA contract that transfers ownership of an asset to another party at the end of a stated period
  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. CA contract under which one party provides services using its own assets in exchange for periodic payments
  4. DA contract that transfers substantially all risks and rewards of ownership of an asset to the user

Explanation

Ind AS 116 defines a lease as a contract, or part of a contract, that conveys the right to use an underlying asset for a period of time in exchange for consideration. Ownership transfer or risks and rewards tests belong to older finance-lease thinking and are not the definition. A service contract alone does not convey a right to use an identified asset.

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