Ministry of Corporate Affairs (MCA) vide a notification dated 24th July,2020 has amended Indian Accounting Standard (Ind AS) 116 relating to 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.
MCA has inserted paras 46A and 46B under the heading lease modification which provides that:
As a practical expedient, a lessee may elect not to assess whether a rent concession is a lease modification, if all of the following conditions are met:
If the lessee applies the practical expedient as per para 46A, he shall make the following disclosures:
Lease modification requires re-computation of lease liability using discount rate on the date of modification. This would have posed significant challenge to company whose volume of leases are very high. The amendment to Ind-AS 116 will provide significant relief to such lessees for accounting for rent concessions thereby saving their cost and efforts from discounting revised lease payments using revised discount rate.
Source: MCA Notification| 24.07.2020