Your company may not own the building, the office or the warehouse. But under Ind AS 116, those leases can still become a very visible part of your balance sheet. That is why I don’t see Ind AS 116 simply as another accounting burden.
It brings something into the financial statements that was previously much easier to overlook: the economic commitment created by leasing an asset.
For most leases, a lessee recognises two things:
A right-of-use asset — representing the right to use the underlying asset.
And a lease liability — representing the obligation to make future lease payments.
That can significantly change how a business appears financially.
Consider a retailer operating hundreds of leased stores.
The business may not own the properties, but it has committed to making lease payments over several years. Ind AS 116 makes that commitment visible instead of leaving users to understand it mainly through rental expense and disclosures.
The same applies to leased offices, warehouses, vehicles and equipment.
It also gives investors and management more information about how leases affect the financial statements – including depreciation, interest expense, additions to right-of-use assets and lease cash outflows.
Yes, the accounting is more detailed.
But the benefit is that management, lenders and investors get a clearer picture of the obligations attached to the way a business operates.
Sometimes transparency means putting a number on something that was always economically there.
Do you think Ind AS 116 has made financial statements more useful for understanding a company’s true obligations?
