2) Ind AS 116, Its objective, Difference between operating Lease and Financial Lease.

Question

Accepted Answer

Ind AS 116 is a new accounting standard that replaces the old lease accounting standard.

Ind AS 116 is effective from April 1, 2019.
Its objective is to provide a single lessee accounting model that requires lessees to recognize assets and liabilities for all leases with a term of more than 12 months.
Operating leases are treated as off-balance sheet financing, while financial leases are treated as on-balance sheet financing.
Under operating leases, the lessee only recognizes lease payments as an expense in the income statement, while under financial leases, the lessee recognizes both the asset and liability in the balance sheet.
Ind AS 116 has a significant impact on financial statements, particularly for companies with a large number of leases.
For example, a company that leases office space under an operating lease will now have to recognize the lease as an asset and liability on its balance sheet under Ind AS 116.
The new standard also requires additional disclosures in the notes to the financial statements.
Overall, Ind AS 116 aims to improve transparency and comparability in financial reporting for leases.

Accepted Answer

Ind AS 116, titled "Leases," aims to improve transparency and comparability in financial reporting by standardizing the way companies account for leases. Here's a breakdown of its objectives:

1. Consistent Recognition and Measurement:

Ind AS 116 introduces a single lessee accounting model, requiring most leases with a term of over 12 months to be recognized on the balance sheet as both a right-of-use (ROU) asset and a lease liability. This eliminates the previous classification into finance and operating leases for lessee, ensuring consistent recognition and measurement across all leases.

2. Enhanced Transparency:

The standard requires extensive disclosures about leases, including lease terms, future payments, and the impact on financial statements. This transparency allows users to better assess the company's financial position, performance, and cash flows.

3. Level Playing Field:

By aligning with the International Financial Reporting Standard (IFRS) 16, Ind AS 116 creates a level playing field for Indian companies operating globally. This improves comparability of financial statements across jurisdictions and makes it easier for investors to make informed decisions.

Finance Lease vs Operating Lease

All leases (except short-term and low-value leases) are recognized on the balance sheet as a right-of-use asset and a lease liability.
The right-of-use asset is depreciated over its useful life or lease term, whichever is shorter.
Lease payments are separated into interest and principal components. The interest expense is recognized in profit or loss over the lease term.

2) Ind AS 116, Its objective, Difference between operating Lease and Financial Lease.

Top PwC Audit Associate interview questions & answers

Popular interview questions of Audit Associate

Top HR questions asked in PwC Audit Associate