Core concepts
- 01Single lessee model: virtually all leases on balance sheet (Right-of-Use asset + lease liability).
- 02Exceptions: short-term (≤12 months) and low-value (typically <$5000) leases.
- 03Lessor accounting retained — operating vs finance lease classification.
- 04Lease liability = PV of lease payments; ROU asset = lease liability + initial direct costs + prepayments − incentives.
- 05Subsequent measurement: ROU depreciated, liability accreted at IRR.
Flowchart summary
Lessee Model | Identify lease (control identified asset) | Lease Liability = PV of payments ROU Asset = Liability + costs - incentives | Depreciate ROU + Interest expense on Liability | Cash payments: reduce Liability (principal) + Interest
Exam-critical pointers
- ⭐IBR (Incremental Borrowing Rate) used when implicit rate not determinable.
- ⭐Sale and leaseback: assess if sale qualifies under Ind AS 115; if not — financing transaction.
- ⭐Lease modifications: separate lease vs remeasurement (decrease in scope → derecognise; others → adjust ROU).
- ⭐Lessor: finance lease creates receivable; operating lease — straight-line income.
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