These changes to Ind AS will allow companies to show the Covid rental concessions in their P&L accounts. The move comes as a huge relief for airlines or retail chains that have many assets or properties on hire. Until now, if any terms and conditions of an existing lease contract changed, then it would have to be treated as a new lease contract.
India has amended the accounting standards to provide relief to companies that received concessions on their rentals after Covid-19 outbreak.
Changes to the Indian Accounting Standards(Ind AS) will allow companies to show the benefit in their profit and loss (P&L) account. The move comes as a huge relief for airlines or retail chains that have many assets or properties on hire.
Until now, if any terms and conditions of an existing lease contract changed, then it would have to be treated as a new lease contract. This meant that if a company got a rental concession for one year in a ten-year contract, the benefit would have to be reworked to reflect its present value, which would be lower than the current value.
The latest amendment does away with the need for such recalculations, and the benefit can be taken into the P&L for the current period, simplifying the accounting to a great extent.
The relaxation on rental concession accounting is especially beneficial to companies that have many assets or properties on hire, such as airlines or retail chains, insurance companies and banks, according to Shalu Kedia, director at Nangia and Co.
“This would also improve the profitability of a company,” Kedia added.
The changes, which went through the Institute of Chartered Accountants of India (ICAI) and the National Financial Reporting Authority (NFRA) before being notified, were part of annual refinements made to align Ind AS with the International Financial Reporting Standards (IFRS).
The ministry of corporate affairs (MCA) has also amended the definition of business combinations and material items to remove ambiguities, while exempting hedges from being classified as ineffective on the basis of interest rate benchmark reform.
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