Ind AS 17 & Ind AS 16: Accounting for amortization and disclosure of leasehold land
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- Last Updated on 1 June, 2022
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The question this time relates to whether a land taken on lease for a period of 60 years should be amortized as per the provisions stated in Ind AS 17 or should it be disclosed in the books of accounts as freehold property?
M Ltd. has taken a piece of land on lease for a period of 60 years to construct its office premises. As per the terms of lease agreement, M Ltd. can transfer the land to lessor (owner of land) at any time after 5 years along with payment of transfer charges. There is no specific clause in the lease agreement which provides that land will be transferred to M Ltd. at the end of lease term.
In experience, it has been seen that leasehold property gets converted into freehold property at the end of lease term. It is further believed that the value of land always appreciates in future. Considering all the above instances, M Ltd. has not amortized the leasehold land. M Ltd. follows the Indian Accounting Standards (Ind AS) for the preparation of its financial statements.
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