Appropriate Accounting Policies and Disclosures in Relation to Finance Leases and Operating Leases

Topics: Finance lease, Lease, Renting Pages: 16 (4766 words) Published: September 9, 2010
Accounting Standard (AS) 19:- LEASE


Presented by -

Shree Vardhan Poddar :- 63

Nikhar Bansal :- 27

Disha Kochher :- 16

Sakshar Sindhwani :- 40


• Summary

• Objective ,scope and definations

• Classification of leases

• Leases in the financial statements of lessees

• Indian and international accounting standards compared:

• Hire purchase versus lease


AS 19 prescribes the accounting and disclosure requirement for both finance leases and operating leases in the books of the lesser and lessee . The classifications of leases adopted in this standards is based on the extents to which risks and rewards incident to ownership of a leased asset lie with the lesser and the lessee. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incident to ownership. An operating lease is a lease other than finance lease. at the inception of the lease, assets under finance are capitalized in the books of lessee with corresponding liability for lease obligations as against the operating lease , wherein lease payments are recognized as an expense in profit and loss account on a systematic basis over the lease term without capitalizing the asset. The lesser should recognize receivable at an amount equal to net investment in the lease in case of finance lease, whereas under operating lease/the lesser will present the leased asset under fixed assets in his balance sheet besides recognizing the lease income on a systematic basis over the lease term .


The objective of this Standard is to prescribe, for lessees and lesser, the appropriate accounting policies and disclosures in relation to finance leases and operating leases.


1. This Standard should be applied in accounting for all leases other than:

(a) lease agreements to explore for or use natural resources, such as oil, gas, timber, metals and other mineral lights; and

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

(c) lease agreements to use lands.

2. 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. On the other hand, 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.

Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments. The lessee is the receiver of the services or the assets under the lease contract and the lessor is the owner of the assets. The relationship between the tenant and the landlord it’s called a tenancy, and can be for a fixed or an indefinite period of time (called the term of the lease). The consideration for the lease is called rent. A gross lease is when the tenant pays a flat rental amount and the landlord pays for all property charges regularly incurred by the ownership from lawnmowers. Under normal circumstances, an owner of property is at liberty to do what they want with their property, including destroys it or hand over possession of the property to a tenant. However, if the owner has surrendered possession to another (i.e. the tenant) then any interference with the quiet enjoyment of the property by the tenant in lawful possession is unlawful

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

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