Aatmja Kumari(Intern Journalist): The government has amended certain Indian Accounting Standards (Ind-AS), including the standard relating to leases amid the coronavirus pandemic. Ind-AS 103, 116, and some other standards have been amended by the Corporate Affairs Ministry.
While Ind-AS 103 pertains to business combinations, Ind-AS 116 relates to principles for the recognition, presentation, and disclosure of leases.
In the wake of the pandemic, many lessors have extended rent concessions to lessees. However, applying the Ind-AS 116 requirements for changes to lease payments could have posed practical difficulties in the current situation.
Against this backdrop, the ministry has amended the rules whereby entities would get relief from lease modification accounting due to COVID-19 related rent concessions. The amendments can be followed by lessees for annual reporting periods beginning on or after April 1, 2020.
Leading consultancy EY India’s Partner and National Leader (Financial Accounting Advisory Services) Sandip Khetan said the amendment was keenly awaited by Indian companies who were gearing up for their quarterly results.
“Lease modification requires re-computation of lease liability using the discount rate on the date of modification. This would have posed a significant challenge to the company whose volume of leases is very high.
“The amendment to Ind-AS 116 will provide significant relief to such lessees for accounting for rent concessions from lessors specifically arising from the COVID-19 pandemic,” he noted.
Jigar Parikh, Partner (Financial Accounting Advisory Services) at EY India said that while lessees that elect to apply the practical expedient do not need to assess whether a concession constitutes a modification, they still need to evaluate the appropriate accounting for each concession as the terms of the concession granted may vary. As an example, he noted that there are interpretational issues with respect to whether the benefit of rent concession should be accounted for in profit and loss account or adjusted against the right of use asset.
Among others, the ministry has also amended rules regarding Ind-AS 103. These are aimed at helping entities to determine whether a transaction needs to be accounted for as a business combination or as an asset acquisition.
Sandip Khetan said determining whether an acquired set of activities and assets is a business or not, could result in significantly different accounting outcomes.
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