Accounting Standards 1-29 - Seth & Associates

Accounting Standard (AS) 19
Leases
(In this Accounting Standard, the standard portions have been set in bold italic type.
These should be read in the context of the background material which has been set in
normal type, and in the context of the ‘Preface to the Statements of Accounting
Standards’.)
The following is the text of Accounting Standard (AS) 19, ‘Leases’, issued by the Council
of the Institute of Chartered Accountants of India. This Standard comes into effect in
respect of all assets leased during accounting periods commencing on or after 1.4.2001
and is mandatory in nature from that date. Accordingly, the ‘Guidance Note on Accounting
for Leases’ issued by the Institute in 1995, is not applicable in respect of such assets.
Earlier application of this Standard is, however, encouraged.
Objective
The objective of this Statement is to prescribe, for lessees and lessors, the appropriate
accounting policies and disclosures in relation to finance leases and operating leases.
Scope
1. This Statement should be applied in accounting for all leases other than:
a. lease agreements to explore for or use natural resources, such as oil, gas, timber,
metals and other mineral rights; and
b. licensing agreements for items such as motion picture films, video recordings,
plays, manuscripts, patents and copyrights; and
c. lease agreements to use lands.
2. This Statement applies to agreements that transfer the right to use assets even though
substantial services by the lessor may be called for in connection with the operation or
maintenance of such assets. On the other hand, this Statement does not apply to
agreements that are contracts for services that do not transfer the right to use assets from
one contracting party to the other.
Definitions
3. The following terms are used in this Statement with the meanings specified:
A lease is an agreement whereby the lessor conveys to the lessee in return for a payment
or series of payments the right to use an asset for an agreed period of time.
A finance lease is a lease that transfers substantially all the risks and rewards incident to
ownership of an asset.
An operating lease is a lease other than a finance lease.
A non-cancellable lease is a lease that is cancellable only: