Allocation of Consideration Among Lease Component and Non-lease Component

Para 13 of Ind AS 116, Leases, states that contract that contains a lease component and one or more additional lease or non-lease components, a lessee shall allocate the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

Further, the relative stand-alone price of lease and non-lease components shall be determined on the basis of the price the lessor, or a similar supplier, would charge an entity for that component, or a similar component, separately. If an observable stand-alone price is not readily available, the lessee shall estimate the stand-alone price, maximizing the use of observable information.

This story discusses a practical case story on the allocation of the contract price between the lease and non-lease component using the above provisions and other provisions of Ind AS 116.

Click Here To Read The Full Story