Major differences between AS 19 and Ind AS 17

Major differences between AS 19 and Ind AS 17 related to leases are:

Leases for Land and building

There is no specific guidance on separation of leases of land and buildings. Presently, leasehold land is recorded and classified as fixed assets.

Land and buildings elements are classified and accounted for separately (Operating or Finance) as per definition and classification criteria unless the land element is not material.

Lease Incentives

There is no specific guidance on lease incentives (such as rent-free period) under existing AS.

Under Ind AS, lease incentives (such as rent-free period) are recognised by both the lessor and the lessee as a reduction in rental income and expense, respectively, over the lease term.

Curve out from IFRS in Ind AS

Ind AS 17 contains a curve out for escalation of operating lease rentals that are in line with the expected general inflation. Hence, there should not be straight lined by the lessor as well as by the lessee. 

Whether an arrangement contains a lease

Under AS 17, there is no specific guidance on whether an arrangement contains a lease. Payments under arrangements which are not in the form of leases are generally recognised in accordance with the nature of expense incurred.

Arrangements that do not take the legal form of a lease but fulfillment of which is dependent on the use of specific assets and which convey the right to use the assets may have to be accounted for as leases.

Initial direct costs of lessor under a finance lease

Under AS 17, Initial direct costs are recognised immediately or allocated against the finance income over lease term.

Under Ind AS 19, such costs are included in the measurement of the finance lease receivable and reduce the amount of the income recognised over the lease term.

Initial direct costs of lessor under an operating lease

Under AS 17, Initial direct costs incurred by lessor are recognised immediately or allocated against the over lease term.

Under Ind AS 19, such costs are included in the carrying amount of leased asset and recognised as expense over the lease term on the same basis in which lease income is recognised.