Lease Accounting. Dr.T.P.Ghosh Professor , MDI , Gurgaon. Controversy Over Lease Classification and Accounting.
Professor , MDI , Gurgaon
This is based on the concept of substance over form.
(i) upon the occurrence of some remote contingency; or
(ii) with the permission of the lessor; or
(iii) if the lessee enters into a new lease for the same or an equivalent asset with the same lessor; or
(iv) upon payment by the lessee of an additional amount such that, at inception, continuation of the lease is reasonably certain.
Minimum lease payments
by an independent third party.
J) Lease Rentals :
Assets acquired prior to 1st April, 2001 under Finance Leases were being accounted by segregating the lease rentals into cost component and interest component by applying an implicit rate of return. The cost component was being amortized over the useful life of the asset, the interest component was charged as a period cost and the aggregate was debited to the profit and loss account under the head 'Lease Rent'.
The lease payment in excess of or lower than the charge for the year were being carried as prepaid sums or liabilities respectively. During the year, the Company has changed this policy. The cost component, which was amortized and the amount representing prepaid sum related thereto have being shown as Additions under the head 'Lease Assets' in Fixed Assets. The cost component which was amortized in the past has been shown as Adjustment to Depreciation in the Fixed Assets. This change has no impact on the Profit and Loss Account.
Secondary Lease rentals are being charged to Profit and Loss Account.