Entity Y and Entity Z execute a 12-year lease of a railcar with the following terms on 1st January, 20X1: The lease commencement date is 1st…
CA Final · Financial Reporting · MTP · September 2025
Entity Y and Entity Z execute a 12-year lease of a railcar with the following terms on 1st January, 20X1: The lease commencement date is 1st February 20X1.Entity Y must pay Entity Z the first monthly rental payment of 10,000 upon execution of the lease.Entity Z will pay Entity Y - 50,000 cash incentive to enter into the lease payable upon lease execution. Entity Y incurred - 1,000 of initial direct costs, which are payable on 1st February 20X1. Entity Y calculated the initial lease liability as the present value of the lease payments discounted using its incremental borrowing rate because the rate implicit in the lease could not be readily determined; the initial lease liability is 8,50,000. How would Lessee Company measure and record this lease?
Suggested Answer and Working Notes:
Either Entity Y would calculate the right-of-use asset as follows: Initial measurement of lease liability 8,50,000 Lease payments made to Entity Z at or before the commencement date 10,000 Lease incentives received from Entity Z (50,000) Initial direct cost 1,000 Initial measurement of right-of-use asset 8,11,000
Topics: Ind AS 116, Ind AS 105, General
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