INDAS 116

 Understanding Lease Accounting under Ind AS 116

Ind AS 116 transforms lease accounting by requiring lessees to recognize significant leases on the balance sheet. This ensures better financial transparency and comparability. Key Principles for Lessees: 1. Record a Right of Use (ROU) Asset and a Lease Liability at the lease commencement date. 2. Recognize depreciation on the ROU asset and interest expense on the lease liability over the lease term. Key Accounting Entries: 1. Lease Recognition at Inception: • Dr. ROU Asset • Cr. Lease Liability 2. Depreciation and Interest (Monthly): • Dr. Depreciation Expense (ROU Asset) • Cr. Accumulated Depreciation • Dr. Interest Expense • Cr. Lease Liability 3. Lease Payment (Monthly): • Dr. Lease Liability • Cr. Bank Exceptions: Short-term leases (≤12 months) and low-value assets can be expensed directly without balance sheet recognition. Adopting Ind AS 116 ensures accurate representation of financial obligations, aiding better decision-making for stakeholders.

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