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Editorial Board on Accounts and Audit
  • Lease Rent

    by Kamal Garg on Tuesday, August 15, 2017 at 01:24 PM

    Entity A has given land and buildings on lease to Entity B but without rent and nominal rent. How shall this be treated in the books of both the entities

    Replied byEditorial Board Monday, December 11, 2017 at 02:00 PM

    The agreement in this case can’t be classified as lease under Ind AS 17 because Entity A has conveyed the right to use its land & building to Entity B without any periodical or lump sum rent.

    Treatment in the books of Entity A

    The treatment depends upon the intention with which Entity A is holding such land and building. Whether the intention of Entity A is to use the same for its own business (production or supply of goods or services or for administrative purposes) or to provide such land and building on rent to others.
    If the intention is to use the asset for its own business, then Entity A could continue to recognise the land & building as Property, Plant & Equipment (PPE) where it is probable that future economic benefits will flow to the entity.
    But if the intention is to provide the land & building on rent to others then such land and building shall be classified as investment property under Ind AS 40, Investment Property.

    Treatment in the books of Entity B

    No treatment is required.

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