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Exposure Draft of Accounting Standard (AS) 17, Leases (Comments to be received by May 4, 2019)
April, 04th 2019
                                        ED/AS41/2019/09


               Exposure Draft


         Accounting Standard (AS) 17
                   Leases

   Last date for the comments: May 4, 2019




                   Issued by
          Accounting Standards Board
The Institute of Chartered Accountants of India




                       1
                                       Exposure Draft
                              Accounting Standard (AS) 17, Leases
The Indian Accounting Standards (Ind AS), as notified by the Ministry of Corporate Affairs in
February 2015, are applicable to the specified class of companies. Accounting Standards
notified under Companies (Accounting Standards) Rules, 2006, and those issued by the ICAI
are applicable to entities to whom Ind AS are not applicable. However, on the basis of the
discussions held at various standard setting forums, such as, the Accounting Standards Board
(ASB) of the Institute of Chartered Accountants of India (ICAI), NACAS1 and the Ministry of
Corporate Affairs, it has been decided to upgrade Accounting Standards to bring them nearer to
Ind AS. Accordingly, the Accounting Standards Board of ICAI has initiated the process of
upgradation of these standards which will be applicable to all entities to whom Ind AS are not
applicable. While formulating these Standards, ASB decided, wherever possible, to maintain
the consistency with the paragraph numbers and with the numbering of Standards of the Ind
AS.

In the above background, ASB has finalised AS 17, Leases, taking Ind AS 17, Leases, notified
by MCA as the base. The ASB decided not to take Ind AS 116 which supercedes Ind AS 17 as
the base for the purpose of this AS. Major differences between draft AS 17 and Ind AS 17,
Leases, are included in the Appendix 1 of the draft Standard. Major differences between draft
AS 17 and AS 19 are given in Appendix 2 of the draft Standard.

This is the Exposure Draft of the upgraded Accounting Standard (AS) 17, Leases, issued by the
ASB, for comments. AS 17 refers to following AS which are under formulation:
   (i) AS 105, Non-current Assets held for Sale and Discontinued Operations
   (ii) AS 113, Fair Value Measurement

Under draft AS 17, certain exemptions have been provided to small and medium-sized
companies as defined in the MCA notification and small and medium-sized entities (Level II
and III non-corporate entities) as per criteria prescribed by the ICAI with regard to certain
disclosure requirements under paragraphs 31, 35, 47 and 56 to reduce disclosures for such
entities.

The ASB invites comments on any aspect of this Exposure Draft. Comments are most helpful if
they indicate the specific paragraph or group of paragraphs to which they relate, contain a clear
rationale and, where applicable, provide a suggestion for alternative wording.

How to Comment:
Comments can be submitted using one of the following methods so as to receive not later than
May 4, 2019:

    Electronically: click on http://www.icai.org/comments/asb/ to submit comments online
    Email:          Comments can be sent at commentsasb@icai.in

1
 NACAS was in existence prior to the constitution of National Financial Reporting Authority (NFRA) on October
1, 2018.

                                                        2
Postal:        Secretary, Accounting Standards Board,
               The Institute of Chartered Accountants of India,
               ICAI Bhawan, Post Box No. 7100,
               Indraprastha Marg, New Delhi ­ 110 002

Further clarifications on any aspect of this Exposure Draft may be sought by e-mail to
asb@icai.in.




                                              3
Draft Accounting Standard (AS) 17

Leases
(This Accounting Standard includes paragraphs set in bold type and plain type, which
have equal authority. Paragraphs in bold type indicate the main principles.)

Objective
1   The objective of this Standard is to prescribe, for lessees and lessors, the
    appropriate accounting policies and disclosure to apply in relation to leases.

Scope
2   This Standard shall be applied in accounting for all leases other than:

      (a)     leases to explore for or use minerals, oil, natural gas and similar non-
              regenerative resources; and

      (b)     licensing agreements for such items as motion picture films, video
              recordings, plays, manuscripts, patents and copyrights.

      However, this Standard shall not be applied as the basis of measurement for:

      (a)     property held by lessees that is accounted for as investment property
              (see AS 40, Investment Property);

      (b)     investment property provided by lessors under operating leases
              (see AS 40, Investment Property);

      (c)      biological assets within the scope of AS 41, Agriculture held by
              lessees under finance leases; or

      (d)     biological assets within the scope of AS 41 provided by lessors
              under operating leases.

3   This Standard applies to agreements that transfer the right to use assets even
    though substantial services by the lessor may be called for in connection with the
    operation or maintenance of such assets. This Standard does not apply to agreements
    that are contracts for services that do not transfer the right to use assets from
    one contracting party to the other.




                                          4
Definitions
4   The following terms are used in this Standard with the meanings specified:

    A lease is an agreement whereby the lessor conveys to the lessee in return for a
    payment or series of payments the right to use an asset for an agreed
    period of time.

    A finance lease is a lease that transfers substantially all the risks and rewards
    incidental to ownership of an asset. Title may or may not eventually be
    transferred.

    An operating lease is a lease other than a finance lease.

    A non-cancellable lease is a lease that is cancellable only:
    (a)   upon the occurrence of some remote contingency;

    (b)   with the permission of the lessor;

    (c)   if the lessee enters into a new lease for the same or an equivalent asset with
          the same lessor; or

    (d)   upon payment by the lessee of such an additional amount that, at
          inception of the lease, continuation of the lease is reasonably certain.

    The inception of the lease is the earlier of the date of the lease agreement and the
    date of commitment by the parties to the principal provisions of the lease. As at
    this date:

    (a)   a lease is classified as either an operating or a finance lease; and

    (b)   in the case of a finance lease, the amounts to be recognised at the
          commencement of the lease term are determined.

    The commencement of the lease term is the date from which the lessee is entitled
    to exercise its right to use the leased asset. It is the date of initial recognition of
    the lease (ie the recognition of the assets, liabilities, income or expenses resulting
    from the lease, as appropriate).

    The lease term is the non-cancellable period for which the lessee has contracted
    to lease the asset together with any further terms for which the lessee has the
    option to continue to lease the asset, with or without further payment, when at
    the inception of the lease it is reasonably certain that the lessee will exercise the
    option.



                                               5
Minimum lease payments are the payments over the lease term that the lessee is
or can be required to make, excluding contingent rent, costs for services and
taxes to be paid by and reimbursed to the lessor, together with:

(a)   for a lessee, any amounts guaranteed by the lessee or by a party
      related to the lessee; or

(b)   for a lessor, any residual value guaranteed to the lessor by:

      (i)     the lessee;
      (ii)    a party related to the lessee; or
      (iii)   a third party unrelated to the lessor that is financially capable of
              discharging the obligations under the guarantee.

However, if the lessee has an option to purchase the asset at a price that is
expected to be sufficiently lower than fair value at the date the option
becomes exercisable for it to be reasonably certain, at the inception of the lease,
that the option will be exercised, the minimum lease payments comprise
the minimum payments payable over the lease term to the expected date of
exercise of this purchase option and the payment required to exercise it.

Fair value is the amount for which an asset could be exchanged, or a liability
settled, between knowledgeable, willing parties in an arm's length
transactions.

Economic life is either:

(a)   the period over which an asset is expected to be economically usable by
      one or more users; or

(b)   the number of production or similar units expected to be obtained from
      the asset by one or more users.

Useful life is the estimated remaining period, from the commencement of the
lease term, without limitation by the lease term, over which the economic
benefits embodied in the asset are expected to be consumed by the entity.

Guaranteed residual value is:

(a)   for a lessee, that part of the residual value that is guaranteed by the
      lessee or by a party related to the lessee (the amount of the guarantee being
      the maximum amount that could, in any event, become payable); and

(b)   for a lessor, that part of the residual value that is guaranteed by the
      lessee or by a third party unrelated to the lessor that is financially capable
      of discharging the obligations under the guarantee.


                                          6
    Unguaranteed residual value is that portion of the residual value of the leased
    asset, the realisation of which by the lessor is not assured or is guaranteed solely
    by a party related to the lessor.

    Initial direct costs are incremental costs that are directly attributable to
    negotiating and arranging a lease, except for such costs incurred by
    manufacturer or dealer lessors.

    Gross investment in the lease is the aggregate of:

    (a)   the minimum lease payments receivable by the lessor under a finance
          lease, and

    (b)   any unguaranteed residual value accruing to the lessor.

    Net investment in the lease is the gross investment in the lease discounted at
    the interest rate implicit in the lease.

    Unearned finance income is the difference between:

    (a)    the gross investment in the lease, and

    (b)    the net investment in the lease.

    The interest rate implicit in the lease is the discount rate that, at the inception of
    the lease, causes the aggregate present value of (a) the minimum lease payments
    and (b) the unguaranteed residual value to be equal to the sum of (i) the fair
    value of the leased asset and (ii) any initial direct costs of the lessor.

    The lessee's incremental borrowing rate of interest is the rate of interest the
    lessee would have to pay on a similar lease or, if that is not determinable, the
    rate that, at the inception of the lease, the lessee would incur to borrow over a
    similar term, and with a similar security, the funds necessary to purchase the
    asset.

    Contingent rent is that portion of the lease payments that is not fixed in amount
    but is based on the future amount of a factor that changes other than with the
    passage of time (eg., percentage of future sales, amount of future use, future
    price indices, future market rates of interest).

5   A lease agreement or commitment may include a provision to adjust the lease
    payments for changes in the construction or acquisition cost of the leased property or
    for changes in some other measure of cost or value, such as general price
    levels, or in the lessor's costs of financing the lease, during the period between the
    inception of the lease and the commencement of the lease term. If so, the effect of
    any such changes shall be deemed to have taken place at the inception of the lease
    for the purposes of this Standard.
                                            7
    6    The definition of a lease includes contracts for the hire of an asset that contain a
         provision giving the hirer an option to acquire title to the asset upon the fulfilment of
         agreed conditions. These contracts are sometimes known as hire purchase
         contracts.

    6A AS 17 uses the term `fair value' in a way that differs in some respects from the
       definition of fair value in AS 113, Fair Value Measurement. Therefore, when
       applying AS 17 an entity measures fair value in accordance with AS 17, not Ind AS
       113.

    Classification of leases
    7    The classification of leases adopted in this Standard is based on the extent to
         which risks and rewards incidental to ownership of a leased asset lie with the
         lessor or the lessee. Risks include the possibilities of losses from idle capacity or
         technological obsolescence and of variations in return because of changing economic
         conditions. Rewards may be represented by the expectation of profitable operation
         over the asset's economic life and of gain from appreciation in value or realisation
         of a residual value.

    8    A lease is classified as a finance lease if it transfers substantially all the risks
         and rewards incidental to ownership. A lease is classified as an operating
         lease if it does not transfer substantially all the risks and rewards incidental to
         ownership.

    9    Because the transaction between a lessor and a lessee is based on a lease
         agreement between them, it is appropriate to use consistent definitions.
         The application of these definitions to the differing circumstances of the lessor
         and lessee may result in the same lease being classified differently by them.
         For example, this may be the case if the lessor benefits from a residual value
         guarantee provided by a party unrelated to the lessee.

    10 Whether a lease is a finance lease or an operating lease depends on the substance of
       the transaction rather than the form of the contract. 2 Examples of situations that
       individually or in combination would normally lead to a lease being classified as a
       finance lease are:

         (a) the lease transfers ownership of the asset to the lessee by the end of the lease
             term;

         (b) the lessee has the option to purchase the asset at a price that is expected to be
             sufficiently lower than the fair value at the date the option becomes exercisable
             for it to be reasonably certain, at the inception of the lease, that the option will
             be exercised;

2
    See also Appendix B Evaluating the Substance of Transactions Involving the Legal Form of a Lease

                                                      8
    (c) the lease term is for the major part of the economic life of the asset even if title
        is not transferred;

    (d) at the inception of the lease the present value of the minimum lease
        payments amounts to at least substantially all of the fair value of the
        leased asset; and

    (e) the leased assets are of such a specialised nature that only the lessee can use
         them without major modifications.

11 Indicators of situations that individually or in combination could also lead to a
   lease being classified as a finance lease are:

    (a) if the lessee can cancel the lease, the lessor's losses associated with the
        cancellation are borne by the lessee;

    (b) gains or losses from the fluctuation in the fair value of the residual accrue to
        the lessee (for example, in the form of a rent rebate equaling most of the sales
        proceeds at the end of the lease); and

    (c) the lessee has the ability to continue the lease for a secondary period at a rent
        that is substantially lower than market rent.

12 The examples and indicators in paragraphs 10 and 11 are not always conclusive. If
   it is clear from other features that the lease does not transfer substantially all risks
   and rewards incidental to ownership, the lease is classified as an operating lease. For
   example, this may be the case if ownership of the asset transfers at the end of the
   lease for a variable payment equal to its then fair value, or if there are contingent
   rents, as a result of which the lessee does not have substantially all such risks and
   rewards.






13 Lease classification is made at the inception of the lease. If at any time the lessee
   and the lessor agree to change the provisions of the lease, other than by renewing the
   lease, in a manner that would have resulted in a different classification of the lease
   under the criteria in paragraphs 7-12 if the changed terms had been in effect at the
   inception of the lease, the revised agreement is regarded as a new agreement
   over its term. However, changes in estimates (for example, changes in estimates of
   the economic life or of the residual value of the leased property), or changes in
   circumstances (for example, default by the lessee), do not give rise to a new
   classification of a lease for accounting purposes.

14-15 [Refer Appendix 1]

15A When a lease includes both land and buildings elements, an entity assesses the
    classification of each element as a finance or an operating lease separately in
    accordance with paragraphs 7­13. In determining whether the land element is an

                                             9
    operating or a finance lease, an important consideration is that land normally has an
    indefinite economic life.

16 Whenever necessary in order to classify and account for a lease of land and
   buildings, the minimum lease payments (including any lump-sum upfront payments)
   are allocated between the land and the buildings elements in proportion to the
   relative fair values of the leasehold interests in the land element and buildings
   element of the lease at the inception of the lease. If the lease payments cannot be
   allocated reliably between these two elements, the entire lease is classified as a
   finance lease, unless it is clear that both elements are operating leases, in which case
   the entire lease is classified as an operating lease.

17 For a lease of land and buildings in which the amount that would initially be
   recognised for the land element, in accordance with paragraph 20, is immaterial, the
   land and buildings may be treated as a single unit for the purpose of lease
   classification and classified as a finance or operating lease in accordance with
   paragraphs 7-13. In such a case, the economic life of the buildings is regarded as the
   economic life of the entire leased asset.

18-19 [Refer Appendix 1]

Leases in the financial statements of lessees
    Finance leases

    Initial recognition

20 At the commencement of the lease term, lessees shall recognise finance leases as
   assets and liabilities in their balance sheets at amounts equal to the fair value of
   the leased property or, if lower, the present value of the minimum lease
   payments, each determined at the inception of the lease. The discount rate to be
   used in calculating the present value of the minimum lease payments is the
   interest rate implicit in the lease, if this is practicable to determine; if not, the
   lessee's incremental borrowing rate shall be used. Any initial direct costs of
   the lessee are added to the amount recognised as an asset.

21 Transactions and other events are accounted for and presented in accordance with
   their substance and financial reality and not merely with legal form. Although the
   legal form of a lease agreement is that the lessee may acquire no legal title to the
   leased asset, in the case of finance leases the substance and financial reality are
   that the lessee acquires the economic benefits of the use of the leased asset for the
   major part of its economic life in return for entering into an obligation to pay for that
   right an amount approximating, at the inception of the lease, the fair value of the
   asset and the related finance charge.

22 If such lease transactions are not reflected in the lessee's balance sheet, the
   economic resources and the level of obligations of an entity are understated, thereby
                                            10
    distorting financial ratios. Therefore, it is appropriate for a finance lease to be
    recognised in the lessee's balance sheet both as an asset and as an obligation to pay
    future lease payments. At the commencement of the lease term, the asset and the
    liability for the future lease payments are recognised in the balance sheet at the
    same amounts except for any initial direct costs of the lessee that are added to the
    amount recognised as an asset.

23 It is not appropriate for the liabilities for leased assets to be presented in the
   financial statements as a deduction from the leased assets. If for the presentation of
   liabilities in the balance sheet a distinction is made between current and non- current
   liabilities, the same distinction is made for lease liabilities.

24 Initial direct costs are often incurred in connection with specific leasing activities,
   such as negotiating and securing leasing arrangements. The costs identified as
   directly attributable to activities performed by the lessee for a finance lease are
   added to the amount recognised as an asset.

    Subsequent measurement

25 Minimum lease payments shall be apportioned between the finance charge
   and the reduction of the outstanding liability. The finance charge shall be
   allocated to each period during the lease term so as to produce a constant
   periodic rate of interest on the remaining balance of the liability. Contingent
   rents shall be charged as expenses in the periods in which they are incurred.

26 In practice, in allocating the finance charge to periods during the lease term, a
   lessee may use some form of approximation to simplify the calculation.

27 A finance lease gives rise to depreciation expense for depreciable assets as
   well as finance expense for each accounting period. The depreciation policy for
   depreciable leased assets shall be consistent with that for depreciable assets that
   are owned, and the depreciation recognised shall be calculated in accordance
   with AS 16, Property, Plant and Equipment and AS 38, Intangible Assets. If there
   is no reasonable certainty that the lessee will obtain ownership by the end of
   the lease term, the asset shall be fully depreciated over the shorter of the lease
   term and its useful life.

28 The depreciable amount of a leased asset is allocated to each accounting period
   during the period of expected use on a systematic basis consistent with the
   depreciation policy the lessee adopts for depreciable assets that are owned. If
   there is reasonable certainty that the lessee will obtain ownership by the end of the
   lease term, the period of expected use is the useful life of the asset; otherwise the
   asset is depreciated over the shorter of the lease term and its useful life.

29 The sum of the depreciation expense for the asset and the finance expense for the
   period is rarely the same as the lease payments payable for the period, and it is,
   therefore, inappropriate simply to recognise the lease payments payable as an
                                           11
     expense. Accordingly, the asset and the related liability are unlikely to be equal in
     amount after the commencement of the lease term.

30   To determine whether a leased asset has become impaired, an entity applies AS
     36, Impairment of Assets.

     Disclosures

31 Lessees shall make the following disclosures for finance leases:

     (a)   for each class of asset, the net carrying amount at the end of the
           reporting period.

     (b)   a reconciliation between the total of future minimum lease payments at
           the end of the reporting period, and their present value. In addition,
           an entity shall disclose the total of future minimum lease payments at the
           end of the reporting period, and their present value, for each of the
           following periods:

           (i)     not later than one year;

           (ii)    later than one year and not later than five years; (iii)

           later than five years.

     (c)     contingent rents recognised as an expense in the period.

     (d)   the total of future minimum sublease payments expected to be
           received under non-cancellable subleases at the end of the reporting
           period.

     (e)   a general description of the lessee's material leasing arrangements
           including, but not limited to, the following:

           (i)     the basis on which contingent rent payable is determined;

           (ii)    the existence and terms of renewal or purchase options and
                   escalation clauses; and

           (iii)   restrictions imposed by lease arrangements, such as those
                   concerning dividends, additional debt, and further leasing.

      Provided that a Small and Medium Sized Company as defined in the MCA
      notification and Small and Medium-sized Entity (Levels II and III non-
      corporates entity) as per criteria prescribed by the ICAI, may not comply with
      sub-paragraphs (b), (d) and (e).


                                              12
    32 In addition, the requirements for disclosure in accordance with AS 16, AS 36, AS 38,
        AS 40 and AS 41 apply to lessees for assets leased under finance leases.

        Operating leases
    33 Lease payments under an operating lease shall be recognised as an expense on
       a straight-line basis over the lease term unless either:

        (a)    another systematic basis is more representative of the time pattern of the
               user's benefit even if the payments to the lessors are not on that basis; or

        (b)    the payments to the lessor are structured to increase in line with
               expected general inflation to compensate for the lessor's expected
               inflationary cost increases. If payments to the lessor vary because of
               factors other than general inflation, then this condition is not met.3

    34 For operating leases, lease payments (excluding costs for services such as
       insurance and maintenance) are recognised as an expense on a straight-line basis
       unless another systematic basis is representative of the time pattern of the user's
       benefit, even if the payments are not on that basis.

        Disclosures

    35 Lessees shall make the following disclosures for operating leases:

          (a) the total of future minimum lease payments under non-cancellable
              operating leases for each of the following periods:

               (i)     not later than one year;
               (ii)    later than one year and not later than five years;
               (iii)   later than five years.

          (b) the total of future minimum sublease payments expected to be
              received under non-cancellable subleases at the end of the reporting
              period.

          (c) lease and sublease payments recognised as an expense in the period, with
              separate amounts for minimum lease payments, contingent rents, and
              sublease payments.

          (d) a general description of the lessee's significant leasing arrangements
              including, but not limited to, the following:

               (i)     the basis on which contingent rent payable is determined;


3
    See also Appendix A Operating Leases-Incentives.

                                                       13
          (ii) the existence and terms of renewal or purchase options and
               escalation clauses; and

          (iii)restrictions imposed by lease arrangements, such as those concerning
               dividends, additional debt and further leasing.

      Provided that a Small and Medium Sized Company as defined in the MCA
      notification and Small and Medium-sized Entity (Levels II and III non-
      corporates entity) as per criteria prescribed by the ICAI, may not comply with
      sub-paragraphs (a), (b) and (d).

Leases in the financial statements of lessors
    Finance leases

    Initial recognition

36 Lessors shall recognise assets given under a finance lease in their balance
   sheets and present them as a receivable at an amount equal to the net
   investment in the lease.

37 Under a finance lease substantially all the risks and rewards incidental to legal
   ownership are transferred by the lessor, and thus the lease payment receivable is
   treated by the lessor as repayment of principal and finance income to reimburse and
   reward the lessor for its investment and services.

38 Initial direct costs are often incurred by lessors and include amounts such as
   commissions, legal fees and internal costs that are incremental and directly
   attributable to negotiating and arranging a lease. They exclude general overheads
   such as those incurred by a sales and marketing team. For finance leases other
   than those involving manufacturer or dealer lessors, initial direct costs are
   included in the initial measurement of the finance lease receivable and reduce the
   amount of income recognised over the lease term. The interest rate implicit in the
   lease is defined in such a way that the initial direct costs are included
   automatically in the finance lease receivable; there is no need to add them separately.
   Costs incurred by manufacturer or dealer lessors in connection with negotiating and
   arranging a lease are excluded from the definition of initial direct costs. As a result,
   they are excluded from the net investment in the lease and are recognised as an
   expense when the selling profit is recognised, which for a finance lease is
   normally at the commencement of the lease term.

    Subsequent measurement

39 The recognition of finance income shall be based on a pattern reflecting a
   constant periodic rate of return on the lessor's net investment in the finance
   lease.

                                            14
40 A lessor aims to allocate finance income over the lease term on a systematic and
   rational basis. This income allocation is based on a pattern reflecting a constant
   periodic return on the lessor's net investment in the finance lease. Lease payments
   relating to the period, excluding costs for services, are applied against the gross
   investment in the lease to reduce both the principal and the unearned finance income.

41 Estimated unguaranteed residual values used in computing the lessor's gross
   investment in the lease are reviewed regularly. If there has been a reduction in the
   estimated unguaranteed residual value, the income allocation over the lease term is
   revised and any reduction in respect of amounts accrued is recognised immediately.

41A An asset under a finance lease that is classified as held for sale (or included in a
    disposal group that is classified as held for sale) in accordance with AS 105, Non-
    current Assets Held for Sale and Discontinued Operations, shall be accounted
    for in accordance with that AS.

42 Manufacturer or dealer lessors shall recognise selling profit or loss in the
   period, in accordance with the policy followed by the entity for outright sales. If
   artificially low rates of interest are quoted, selling profit shall be restricted to
   that which would apply if a market rate of interest were charged. Costs
   incurred by manufacturer or dealer lessors in connection with negotiating
   and arranging a lease shall be recognised as an expense when the selling
   profit is recognised.

43 Manufacturers or dealers often offer to customers the choice of either buying or
   leasing an asset. A finance lease of an asset by a manufacturer or dealer lessor gives
   rise to two types of income:
   (a) profit or loss equivalent to the profit or loss resulting from an outright sale of the
       asset being leased, at normal selling prices, reflecting any applicable volume or
       trade discounts; and

    (b) finance income over the lease term.

44 The sales revenue recognised at the commencement of the lease term by a
   manufacturer or dealer lessor is the fair value of the asset, or, if lower, the present
   value of the minimum lease payments accruing to the lessor, computed at a
   market rate of interest. The cost of sale recognised at the commencement of the lease
   term is the cost, or carrying amount if different, of the leased property less the
   present value of the unguaranteed residual value. The difference between the sales
   revenue and the cost of sale is the selling profit, which is recognised in accordance
   with the entity's policy for outright sales.

45 Manufacturer or dealer lessors sometimes quote artificially low rates of interest in
   order to attract customers. The use of such a rate would result in an excessive portion
   of the total income from the transaction being recognised at the time of sale. If
   artificially low rates of interest are quoted, selling profit is restricted to that which
   would apply if a market rate of interest were charged.
                                             15
46 Costs incurred by a manufacturer or dealer lessor in connection with negotiating
   and arranging a finance lease are recognised as an expense at the commencement of
   the lease term because they are mainly related to earning the manufacturer's or
   dealer's selling profit.

    Disclosures

47 Lessors shall disclose the following for finance leases:

     (a)   a reconciliation between the gross investment in the lease at the end of
           the reporting period, and the present value of minimum lease payments
           receivable at the end of the reporting period. In addition, an entity shall
           disclose the gross investment in the lease and the present value of
           minimum lease payments receivable at the end of the reporting period,
           for each of the following periods:

           (i)     not later than one year;
           (ii)    later than one year and not later than five years;
           (iii)   later than five years.

     (b)    unearned finance income.

     (c)    the unguaranteed residual values accruing to the benefit of the lessor.

     (d)   the accumulated allowance for uncollectible minimum lease payments
           receivable.

     (e)    contingent rents recognised as income in the period.

     (f)    a general description of the lessor's material leasing arrangements.

      Provided that a Small and Medium Sized Company as defined in the MCA
      notification and Small and Medium-sized Entity (Levels II and III non-
      corporates entity) as per criteria prescribed by the ICAI, may not comply with
      sub-paragraphs (a) and (f).

48 As an indicator of growth it is often useful also to disclose the gross investment
   less unearned income in new business added during the period, after deducting the
   relevant amounts for cancelled leases.

    Operating leases
49 Lessors shall present assets subject to operating leases in their balance sheet
   according to the nature of the asset.








                                          16
    50 Lease income from operating leases (excluding amounts for services such as
       insurance and maintenance) shall be recognised in income on a straight-line
       basis over the lease term, unless either:

          (a) another systematic basis is more representative of the time pattern in
               which use benefit derived from the leased asset is diminished, even if the
               payments to the lessors are not on that basis; or

          (b) the payments to the lessor are structured to increase in line with expected
               general inflation to compensate for the lessor's expected inflationary cost
               increases. If payments to the lessor vary according to factors other than
               inflation, then this condition is not met.4

    51 Costs, including depreciation, incurred in earning the lease income are recognised as
       an expense. Lease income (excluding receipts for services provided such as insurance
       and maintenance) is recognised on a straight-line basis over the lease term even if the
       receipts are not on such a basis, unless another systematic basis is more
       representative of the time pattern in which use benefit derived from the leased asset
       is diminished.

    52 Initial direct costs incurred by lessors in negotiating and arranging an operating
       lease shall either be deferred and allocated to income over the lease term in
       proportion to the recognition of rent income, or recognised as an expense in the
       statement of profit and loss in the period in which they are incurred.

    53 The depreciation policy for depreciable leased assets shall be consistent with
       the lessor's normal depreciation policy for similar assets, and depreciation shall
       be calculated in accordance with AS 16 and AS 38.

    54   To determine whether a leased asset has become impaired, an entity applies AS
         36.

    55 A manufacturer or dealer lessor does not recognise any selling profit on entering
       into an operating lease because it is not the equivalent of a sale.

         Disclosures

    56 Lessors shall disclose the following for operating leases:

         (a)   the future minimum lease payments under non-cancellable operating
               leases in the aggregate and for each of the following periods:

               (i)     not later than one year;
               (ii)    later than one year and not later than five years;
               (iii)   later than five years.

4
    See also Appendix A Operating Leases-Incentives.

                                                       17
  (b)    total contingent rents recognised as income in the period.

  (c)    a general description of the lessor's leasing arrangements.

  (d)     accounting policy adopted in respect of initial direct costs.

  Provided that a Small and Medium Sized Company as defined in the MCA
  notification and Small and Medium-sized Entity (Levels II and III non-corporates
  entity) as per criteria prescribed by the ICAI, may not comply with sub-
  paragraphs (a) and (c). Further, a non-corporate Small and Medium Sized Entity
  falling in Level III as per criteria prescribed by the ICAI, may not comply with
  sub-paragraph (d) also.

57 In addition, the disclosure requirements in AS 16, AS 36, AS 38, AS 40 and AS 41
    apply to lessors for assets provided under operating leases.

Sale and leaseback transactions
58 A sale and leaseback transaction involves the sale of an asset and the leasing back of
   the same asset. The lease payment and the sale price are usually interdependent
   because they are negotiated as a package. The accounting treatment of a sale and
   leaseback transaction depends upon the type of lease involved.

59 If a sale and leaseback transaction results in a finance lease, any excess or
   deficiency of sales proceeds over the carrying amount shall not be immediately
   recognised as income or loss in the financial statements of a seller-lessee.
   Instead, it shall be deferred and amortised over the lease term in proportion to
   the depreciation of the leased asset.

60 If the leaseback is a finance lease, the transaction is a means whereby the lessor
   provides finance to the lessee, with the asset as security. For this reason it is not
   appropriate to regard an excess of sales proceeds over the carrying amount as
   income. Such excess is deferred and amortised over the lease term in proportion to
   the depreciation of the leased asset. Similarly, it is not appropriate to regard a
   deficiency as loss. Such deficiency is deferred and amortised over the lease term.

61 If a sale and leaseback transaction results in an operating lease, and it is
   clear that the transaction is established at fair value, any profit or loss shall be
   recognised immediately. If the sale price is below fair value, any profit or loss
   shall be recognised immediately except that, if the loss is compensated for by
   future lease payments at below market price, it shall be deferred and amortised
   in proportion to the lease payments over the period for which the asset is
   expected to be used. If the sale price is above fair value, the excess over fair
   value shall be deferred and amortised over the period for which the asset is
   expected to be used.



                                           18
62 If the leaseback is an operating lease, and the lease payments and the sale price
   are at fair value, there has in effect been a normal sale transaction and any profit or
   loss is recognised immediately.

63 For operating leases, if the fair value at the time of a sale and leaseback
   transaction is less than the carrying amount of the asset, a loss equal to the
   amount of the difference between the carrying amount and fair value shall be
   recognised immediately.

64 For finance leases, no such adjustment is necessary unless there has been an
   impairment in value, in which case the carrying amount is reduced to recoverable
   amount in accordance with AS 36.

65 Disclosure requirements for lessees and lessors apply equally to sale and
   leaseback transactions. The required description of material leasing arrangements
   leads to disclosure of unique or unusual provisions of the agreement or terms of
   the sale and leaseback transactions.

66 Sale and leaseback transactions may trigger the separate disclosure criteria in AS 1,
   Presentation of Financial Statements.




                                           19
Appendix A

Operating Leases--Incentives
This appendix is an integral part of the AS.

Issue
1    In negotiating a new or renewed operating lease, the lessor may provide
     incentives for the lessee to enter into the agreement. Examples of such incentives are
     an up-front cash payment to the lessee or the reimbursement or assumption by the
     lessor of costs of the lessee (such as relocation costs, leasehold improvements and
     costs associated with a pre-existing lease commitment of the lessee). Alternatively,
     initial periods of the lease term may be agreed to be rent-free or at a reduced rent.

2    The issue is how incentives in an operating lease should be recognised in the
     financial statements of both the lessee and the lessor.

Accounting Principles
3    All incentives for the agreement of a new or renewed operating lease shall be
     recognised as an integral part of the net consideration agreed for the use of the leased
     asset, irrespective of the incentive's nature or form or the timing of payments.

4    The lessor shall recognise the aggregate cost of incentives as a reduction of rental
     income over the lease term, on a straight-line basis unless another systematic
     basis is representative of the time pattern over which the benefit of the leased
     asset is diminished.

5    The lessee shall recognise the aggregate benefit of incentives as a reduction of
     rental expense over the lease term, on a straight-line basis unless another systematic
     basis is representative of the time pattern of the lessee's benefit from the use of the
     leased asset.

6    Costs incurred by the lessee, including costs in connection with a pre-existing
     lease (for example costs for termination, relocation or leasehold improvements), shall
     be accounted for by the lessee in accordance with the Standards applicable to those
     costs, including costs which are effectively reimbursed through an incentive
     arrangement.




                                               20
Appendix B

Evaluating the Substance of Transactions Involving the
Legal Form of a Lease
This appendix is an integral part of the AS.

Issue
1    An Entity may enter into a transaction or a series of structured transactions (an
     arrangement) with an unrelated party or parties (an Investor) that involves the
     legal form of a lease. For example, an Entity may lease assets to an Investor and
     lease the same assets back, or alternatively, legally sell assets and lease the same
     assets back. The form of each arrangement and its terms and conditions can vary
     significantly. In the lease and leaseback example, it may be that the arrangement is
     designed to achieve a tax advantage for the Investor that is shared with the
     Entity in the form of a fee, and not to convey the right to use an asset.

2    When an arrangement with an Investor involves the legal form of a lease, the
     issues are:

     (a)   how to determine whether a series of transactions is linked and should be
           accounted for as one transaction;

     (b) whether the arrangement meets the definition of a lease under AS 17; and, if
         not,

           (i)    whether a separate investment account and lease payment obligations that
                  might exist represent assets and liabilities of the Entity

           (ii)   how the Entity should account for other obligations resulting from the
                  arrangement; and

           (iii) how the Entity should account for a fee it might receive from an
                 Investor.

 Accounting Principles
3    A series of transactions that involve the legal form of a lease is linked and shall be
     accounted for as one transaction when the overall economic effect cannot be
     understood without reference to the series of transactions as a whole. This is the case,
     for example, when the series of transactions are closely interrelated,




                                               21
          negotiated as a single transaction, and takes place concurrently or in a continuous
          sequence.

4   The accounting shall reflect the substance of the arrangement. All aspects and
    implications of an arrangement shall be evaluated to determine its substance, with
    weight given to those aspects and implications that have an economic effect.

5    AS 17 applies when the substance of an arrangement includes the conveyance of
    the right to use an asset for an agreed period of time. Indicators that
    individually demonstrate that an arrangement may not, in substance, involve a lease
    under AS 17 include:

    (a) an Entity retains all the risks and rewards incident to ownership of an underlying
         asset and enjoys substantially the same rights to its use as before the
         arrangement;

    (b)     the primary reason for the arrangement is to achieve a particular tax result, and
            not to convey the right to use an asset; and

    (c)     an option is included on terms that make its exercise almost certain (eg a put
            option that is exercisable at a price sufficiently higher than the expected
            fair value when it becomes exercisable).

6   The definitions and guidance in paragraphs 49­63 of the Framework for the
    Preparation and Presentation of Financial Statements in accordance with
    Accounting Standards, issued by the Institute of Chartered Accountants of India,
    shall be applied in determining whether, in substance, a separate investment account
    and lease payment obligations represent assets and liabilities of the Entity.
    Indicators that collectively demonstrate that, in substance, a separate investment
    account and lease payment obligations do not meet the definitions of an asset and a
    liability and shall not be recognised by the Entity include:

    (a)     the Entity is not able to control the investment account in pursuit of its own
            objectives and is not obligated to pay the lease payments. This occurs when, for
            example, a prepaid amount is placed in a separate investment account to protect
            the Investor and may only be used to pay the Investor, the Investor agrees that
            the lease payment obligations are to be paid from funds in the investment
            account, and the Entity has no ability to withhold payments to the Investor
            from the investment account;

    (b)     the Entity has only a remote risk of reimbursing the entire amount of any fee
            received from an Investor and possibly paying some additional amount, or,
            when a fee has not been received, only a remote risk of paying an amount under
            other obligations (eg a guarantee). Only a remote risk of payment exists when,
            for example, the terms of the arrangement require that a prepaid amount is
            invested in risk-free assets that are expected to generate sufficient cash flows
            to satisfy the lease payment obligations; and
                                              22
    (c)   other than the initial cash flows at inception of the arrangement, the only cash
          flows expected under the arrangement are the lease payments that are satisfied
          solely from funds withdrawn from the separate investment account
          established with the initial cash flows.

7   Other obligations of an arrangement, including any guarantees provided and
    obligations incurred upon early termination, shall be accounted for under AS 37,
    Provisions, Contingent Liabilities and Contingent Assets, or AS 109, Financial
    Instruments depending on the terms.

8   The requirements in AS 18, Revenue, shall be applied to the facts and
    circumstances of each arrangement in determining when to recognise a fee as
    income that an Entity might receive. Factors such as whether there is continuing
    involvement in the form of significant future performance obligations necessary to
    earn the fee, whether there are retained risks, the terms of any guarantee
    arrangements, and the risk of repayment of the fee, shall be considered. Indicators
    that individually demonstrate that recognition of the entire fee as income when
    received, if received at the beginning of the arrangement, is inappropriate include:

    (a) obligations either to perform or to refrain from certain significant activities are
         conditions of earning the fee received, and therefore execution of a
         legally binding arrangement is not the most significant act required by the
         arrangement;

    (b)   limitations are put on the use of the underlying asset that have the practical
          effect of restricting and significantly changing the Entity's ability to use
          (eg deplete, sell or pledge as collateral) the asset;

    (c)   the possibility of reimbursing any amount of the fee and possibly paying
          some additional amount is not remote. This occurs when, for example,

           (i) the underlying asset is not a specialised asset that is required by the
               Entity to conduct its business, and therefore there is a possibility that the
               Entity may pay an amount to terminate the arrangement early; or

           (ii) the Entity is required by the terms of the arrangement, or has some or
                total discretion, to invest a prepaid amount in assets carrying more
                than an insignificant amount of risk (eg currency, interest rate or credit
                risk). In this circumstance, the risk of the investment's value being
                insufficient to satisfy the lease payment obligations is not remote, and
                therefore there is a possibility that the Entity may be required to pay
                some amount.

9   The fee shall be presented in the statement of profit and loss based on its
    economic substance and nature.

                                            23
Disclosure
10   All aspects of an arrangement that does not, in substance, involve a lease under
     AS 17 shall be considered in determining the appropriate disclosures that are
     necessary to understand the arrangement and the accounting treatment adopted.
     An Entity shall disclose the following in each period that an arrangement exists:

     (a)   a description of the arrangement including:

               (i)     the underlying asset and any restrictions on its use;

               (ii)    the life and other significant terms of the arrangement;

               (iii)   the transactions that are linked together, including any options; and

     (b)   the accounting treatment applied to any fee received, the amount
           recognised as income in the period, and the line item of the statement of profit
           and loss in which it is included.

11   The disclosures required in accordance with paragraph 10 of this appendix shall be
     provided individually for each arrangement or in aggregate for each class of
     arrangement. A class is a grouping of arrangements with underlying assets of a
     similar nature (eg power plants).









                                             24
Appendix C

Determining whether an Arrangement contains a Lease
This appendix is an integral part of the AS.

Background
1   An entity may enter into an arrangement, comprising a transaction or a series of
    related transactions, that does not take the legal form of a lease but conveys a
    right to use an asset (eg an item of property, plant or equipment) in return for a
    payment or series of payments. Examples of arrangements in which one entity
    (the supplier) may convey such a right to use an asset to another entity
    (the purchaser), often together with related services, include:

        outsourcing arrangements (eg the outsourcing of the data processing functions
        of an entity).
        arrangements in the telecommunications industry, in which suppliers of
        network capacity enter into contracts to provide purchasers with rights to
        capacity.
        take-or-pay and similar contracts, in which purchasers must make specified
        payments regardless of whether they take delivery of the contracted products
        or services (eg a take-or-pay contract to acquire substantially all of the output
        of a supplier's power generator).

2   This appendix provides guidance for determining whether such arrangements are, or
    contain, leases that should be accounted for in accordance with AS 17. This
    Appendix does not provide guidance for determining how such a lease should be
    classified under AS 17.

3   In some arrangements, the underlying asset that is the subject of the lease is a
    portion of a larger asset. This appendix does not address how to determine when a
    portion of a larger asset is itself the underlying asset for the purposes of applying AS
    17. Nevertheless, arrangements in which the underlying asset would represent a unit
    of account in either AS 16 or AS 38 are within the scope of this appendix.

Scope
4     This appendix does not apply to arrangements that:

      (a)     are, or contain, leases excluded from the scope of AS 17; or




                                               25
     (b)     are public-to-private service concession arrangements.

Issues
5    The issues addressed in this appendix are:

     (a)   how to determine whether an arrangement is, or contains, a lease as
           defined in AS 17;

     (b)   when the assessment or a reassessment of whether an arrangement is, or
           contains, a lease should be made; and

     (c)   if an arrangement is, or contains, a lease, how the payments for the lease
           should be separated from payments for any other elements in the
           arrangement.

Accounting Principles

    Determining whether an arrangement is, or contains, a lease

6   Determining whether an arrangement is, or contains, a lease shall be based on the
    substance of the arrangement and requires an assessment of whether:

    (a) fulfilment of the arrangement is dependent on the use of a specific asset or
        assets (the asset); and

    (b) the arrangement conveys a right to use the asset.

    Fulfilment of the arrangement is dependent on the use of a
    specific asset

7   Although a specific asset may be explicitly identified in an arrangement, it is not
    the subject of a lease if fulfilment of the arrangement is not dependent on the use of
    the specified asset. For example, if the supplier is obliged to deliver a specified
    quantity of goods or services and has the right and ability to provide those goods or
    services using other assets not specified in the arrangement, then fulfilment of the
    arrangement is not dependent on the specified asset and the arrangement does not
    contain a lease. A warranty obligation that permits or requires the substitution of the
    same or similar assets when the specified asset is not operating properly does not
    preclude lease treatment. In addition, a contractual provision (contingent or
    otherwise) permitting or requiring the supplier to substitute other assets for any
    reason on or after a specified date does not preclude lease treatment before the
    date of substitution.



                                           26
8    An asset has been implicitly specified if, for example, the supplier owns or leases
     only one asset with which to fulfil the obligation and it is not economically
     feasible or practicable for the supplier to perform its obligation through the use of
     alternative assets.

     Arrangement conveys a right to use the asset

9    An arrangement conveys the right to use the asset if the arrangement conveys to
     the purchaser (lessee) the right to control the use of the underlying asset. The right to
     control the use of the underlying asset is conveyed if any one of the following
     conditions is met:

      (a) The purchaser has the ability or right to operate the asset or direct others to
          operate the asset in a manner it determines while obtaining or controlling more
          than an insignificant amount of the output or other utility of the asset.

      (b) The purchaser has the ability or right to control physical access to the
          underlying asset while obtaining or controlling more than an insignificant
          amount of the output or other utility of the asset.

      (c) Facts and circumstances indicate that it is remote that one or more parties other
          than the purchaser will take more than an insignificant amount of the output or
          other utility that will be produced or generated by the asset during the
          term of the arrangement, and the price that the purchaser will pay for the
          output is neither contractually fixed per unit of output nor equal to the
          current market price per unit of output as of the time of delivery of the output.

     Assessing or reassessing whether an arrangement is, or
     contains, a lease
10   The assessment of whether an arrangement contains a lease shall be made at the
     inception of the arrangement, being the earlier of the date of the arrangement and the
     date of commitment by the parties to the principal terms of the arrangement, on the
     basis of all of the facts and circumstances. A reassessment of whether the
     arrangement contains a lease after the inception of the arrangement shall be made
     only if any one of the following conditions is met:

     (a)   There is a change in the contractual terms, unless the change only renews or
           extends the arrangement.

     (b)   A renewal option is exercised or an extension is agreed to by the parties to the
           arrangement, unless the term of the renewal or extension had initially been
           included in the lease term in accordance with paragraph 4 of AS 17. A
           renewal or extension of the arrangement that does not include modification of
           any of the terms in the original arrangement before the end of the term of the


                                             27
           original arrangement shall be evaluated under paragraphs 6-9 only with
           respect to the renewal or extension period.

     (c)   There is a change in the determination of whether fulfilment is dependent on a
           specified asset.

     (d)   There is a substantial change to the asset, for example a substantial
           physical change to property, plant or equipment.

11   A reassessment of an arrangement shall be based on the facts and circumstances as
     of the date of reassessment, including the remaining term of the arrangement.
     Changes in estimate (for example, the estimated amount of output to be delivered to
     the purchaser or other potential purchasers) would not trigger a reassessment. If an
     arrangement is reassessed and is determined to contain a lease (or not to
     contain a lease), lease accounting shall be applied (or cease to apply) from:

      (a) in the case of (a), (c) or (d) in paragraph 10, when the change in
          circumstances giving rise to the reassessment occurs;

      (b) in the case of (b) in paragraph 10, the inception of the renewal or
          extension period.

     Separating payments for the lease from other payments

12   If an arrangement contains a lease, the parties to the arrangement shall apply the
     requirements of AS 17 to the lease element of the arrangement, unless exempted
     from those requirements in accordance with paragraph 2 of AS 17. Accordingly, if an
     arrangement contains a lease, that lease shall be classified as a finance lease or an
     operating lease in accordance with paragraphs 7­17 of AS 17. Other elements of the
     arrangement not within the scope of AS 17 shall be accounted for in accordance
     with other Standards.

13   For the purpose of applying the requirements of AS 17, payments and other
     consideration required by the arrangement shall be separated at the inception of
     the arrangement or upon a reassessment of the arrangement into those for the
     lease and those for other elements on the basis of their relative fair values.
     The minimum lease payments as defined in paragraph 4 of AS 17 include only
     payments for the lease (ie the right to use the asset) and exclude payments for
     other elements in the arrangement (eg for services and the cost of inputs).

14   In some cases, separating the payments for the lease from payments for other
     elements in the arrangement will require the purchaser to use an estimation
     technique. For example, a purchaser may estimate the lease payments by reference
     to a lease agreement for a comparable asset that contains no other elements, or by
     estimating the payments for the other elements in the arrangement


                                            28
           by reference to comparable agreements and then deducting these payments from
           the total payments under the arrangement.

15   If a purchaser concludes that it is impracticable to separate the payments reliably, it
     shall:

     (a) in the case of a finance lease, recognise an asset and a liability at an
          amount equal to the fair value of the underlying asset that was identified in
          paragraphs 7 and 8 as the subject of the lease. Subsequently the liability shall
          be reduced as payments are made and an imputed finance charge on the
          liability recognised using the purchaser's incremental borrowing rate of
          interest.

     (b)     in the case of an operating lease, treat all payments under the arrangement as
             lease payments for the purposes of complying with the disclosure requirements
             of AS 17, but

                (i) disclose those payments separately from minimum lease payments of
                    other arrangements that do not include payments for non-lease
                    elements, and

                (ii) state that the disclosed payments also include payments for non-
                     lease elements in the arrangement.




                                             29
Appendix 1
Note: This Appendix is not a part of the Accounting Standard. The purpose of this Appendix
is only to bring out the major differences, if any, between Accounting Standard (AS) 17 and the
corresponding Indian Accounting Standard (Ind AS) 17, Leases.

Comparison with Ind AS 17, Leases
1. Paragraph numbers 14, 15, 18 and 19 appear as `Deleted' in Ind AS 17. In order to
   maintain consistency with paragraph numbers of Ind AS 17, the paragraph numbers
   are retained in AS 17.

2. Paragraphs 31, 35, 47 and 56 of Ind AS 17 require certain disclosures in addition to
   disclosures requirements of Ind AS 107, Financial Instruments: Disclosures. Some the
   relevant disclosures of Ind AS 107 in this regard could be credit risks and maturity risk
   related disclosures. The aforesaid reference to AS 107 has been deleted as such
   disclosures have not been included in corresponding AS 109, Financial Instruments.

3. For lessor, under operating lease, Ind AS 17 requires to add the initial direct cost to the
   carrying amount of the leased asset and recognised as expense over the lease term on
   the same basis as lease income. AS 17 requires that the initial direct cost shall either be
   deferred and allocated to income over the lease term in proportion to the recognition of
   rental income, or recognised as expense in the period in which incurred. Consequently,
   AS 17 requires disclosures of accounting policy adopted in respect of initial direct
   costs.

4. In Paragraph 7 of Appendix B, the reference to Ind AS 104, Insurance contracts, has
   been deleted, as Accounting Standard corresponding to Ind AS 104, Insurance
   contracts, is not being issued.

5. In Paragraph 8 of Appendix B of AS 17, the reference of Ind AS 115, Revenue from
   Contracts with Customers, has been changed to AS 18, Revenue, as revenue
   recognition is covered by the upgraded AS 18, Revenue.

6. In Appendix C, the reference to Appendix C of Ind AS 115 relating to Service
   Concession Arrangements has been deleted, as this appendix has not been included in
   the revenue related upgraded Accounting Standards. However, scope exclusion of
   service concession arrangements is retained in Appendix C.

7. Under AS 17, small and medium-sized companies as defined in the MCA notification
   and small and medium-sized entities (Level II and III non-corporate entities) as per
   criteria prescribed by the ICAI have been exempted from following disclosure
   requirements since it was felt that these are too onerous for the entities to whom this
   standard would be applicable:
     (i) disclosure under paragraphs 31(b), 31(d) and 31(e)
     (ii) disclosure under paragraphs 35(a), 35(b) and 35(d)
     (iii) disclosure under paragraphs 47(a) and 47(f)
     (iv) disclosure under paragraphs 56(a) and 56(c)
   Further, non-corporate Small and Medium-sized Entities falling under Level III have
   been exempted from disclosures requirement of paragraph 56(d).
                                              30
Appendix 2
Note: This Appendix is not a part of the Accounting Standard. The purpose of this Appendix is
only to bring out the major differences, if any, between Accounting Standard (AS) 19, Leases and
Accounting Standard (AS) 17, Leases

Comparison with AS 19, Leases
1.   AS 19 excludes from its scope accounting of lease agreements to use lands. AS 17
     does not have such scope exclusion. It has specific provisions dealing with accounting
     of leases of land and building.
2.    AS 17 is not applicable as the basis of measurement for:
           property held by lessees that is accounted for as investment property and
           investment property provide by lessor under operating leases, and
           biological assets held by lessees under finance leases/provided by lessors under
           operating leases that are covered within the scope of AS 41, Agriculture.
     AS 19 does not contain such scope exceptions since AS 13, Accounting for
     Investments, dealing with Investment Property does not have such special provision
     and there was no Accounting Standard on Agriculture.
3.   AS 17 makes a distinction between `inception of lease' and `commencement of lease'
     and defines these two terms differently whereas AS 19 does not define the term
     commencement of lease although this term is used at few places. AS 17, requires the
     lessee to recognise finance leases as assets and liabilities in the balance sheet at the
     commencement of the lease term whereas as AS 19 requires recognition at the
     inception of the lease. Further, AS 17 deals with adjustment of lease payments during
     the period between inception of the lease and the commencement of the lease term.
     This aspect is not dealt with in AS 19.
4.   AS 17 requires that in case of operating lease, where payments to the lessor are
     structured to increase in line with the expected general inflation so as to compensate
     the lessor for expected inflationary cost increases shall not be straight lined. AS 19
     does not provide for the same.
5.   The term `initial direct costs' has been specifically defined in AS 17 and definition of
     the term `interest rate implicit in the lease' has been modified in AS 17. There is
     difference in treatment of initial direct costs incurred by a non-manufacturer/non-
     dealer-lessor in respect of a finance lease. Under AS 19, it can either be recognised as
     expense immediately or allocated against the finance income over the lease term.
     Under AS 17 no such provisions are there as interest rate implicit in the lease is
     defined in such a way that the initial direct costs are included automatically in the
     finance lease receivable.
6.   In case of finance lease, in the financial statements of lessor, AS 17 does not
     specifically mention about the treatment of upward adjustment of the estimated
     residual value. AS 19 specifically mentions that upward adjustment of the estimated
     residual value is not made.
7.   AS 17 requires current/non-current classification of lease Liabilities if such
                                              31
classification is made for other liabilities. Also, it makes reference to AS 105, Non-
current Assets Held for Sale and Discontinued Operations. These aspects were not
addressed in AS 19.




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