Govt notifies new accounting standard on leases; effective from April 1

The government has notified a new accounting standard Ind AS 116 that will bring in more transparency in recognition and disclosures about leases in companies' balance sheets, a senior official said Sunday. The Indian Accounting Standard (Ind AS) 116 is expected to have a significant impact on various industries, including aviation where airlines mostly operate planes on lease.

Ind AS 116 -- to be effective from April 1 -- sets out the principles for recognition, presentation and disclosure of leases. It has been notified by the corporate affairs ministry. The official said the standard will help in ensuring more transparency when it comes to recognition of leases by companies and also prevent "window dressing" of accounts.

"Lessors will need to re-look at their accounting policy of recognising lease income on transition to Ind AS 116 and it may have significant impact on ongoing recognition and measurement of rental income in the financial statements," Sandip Khetan said. Khetan is National Leader and Partner (Financial Accounting Advisory Services) at consultancy EY India.

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Leasing of aircraft rather than outright purchase is a common practice in the airlines industry worldwide. With the Ind AS 116 in place, the carriers would have to show all such leases on their respective balance sheets.