Lessee enters into an agreement with Lessor for a period of five years to lease a floor of a building. Lessee is required to make a fixed annual…

Paragraph B33 of Ind AS 116 states that a contract may include an amount payable by the lessee for activities and costs that do not transfer a good or service to the lessee. For example, a lessor may include in the total amount payable a charge for administrative tasks or other costs it incurs associated with the lease, that do not transfer a good or service to the lessee. Such amounts payable, do not give rise to a separate component of the contract, but are considered to be part of the total consideration that is allocated to the separately identified components of the contract. The payments to be made by Lessee for common area maintenance represents payment for non-lease components as it is a payment for a service provided to it by Lessor. The property taxes are required to be paid by Lessor irrespective of whether it leased the building and to which party. Likewise, the building insurance paid by Lessee also protects the Lessor's property and only Lessor will be entitled to receive the claim if received. Accordingly, these are not separate components of the contract because they do not represent payments for goods or services and are considered to be part of the total consideration that is allocated to the separately identified components of the contract (i.e., the lease and non-lease components). As Lessee has not elected the practical expedient as provided in paragraph 15 of the standard, it will separate the lease and the non-lease components, even though the agreement specified payments for four separately identified matters, the arrangement will comprise only two components for accounting purposes. The total annual payment would be allocated between the two identified goods and services representing the lease component and non-lease component as follows: Particulars Standalone prices % of Total Standalone Price Allocation of annual payment* (calculation on full scale) Building rent 2,64,000 73.333% 3,07,860 Maintenance services 96,000 26.666% 1,12,140 Total 3,60,000 100.00% 4,20,000 *The portion of consideration that is allocated to the lease components includes, apart from rent, those amounts that are not considered a separate component (e.g.,60,000 on account of property taxes and - 36,000 on account of building insurance).