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      Question

      ABC Ltd. records a lease as an asset and a corresponding liability in its books under Ind AS 116. The company uses this asset in operations and depreciates it annually. The lease liability is also reduced over time. How will this transaction affect the company’s balance sheet and profit and loss statement?

      A Only balance sheet is affected Correct Answer Incorrect Answer
      B Only P&L is affected Correct Answer Incorrect Answer
      C Both P&L and balance sheet are affected Correct Answer Incorrect Answer
      D Only the cash flow is affected Correct Answer Incorrect Answer
      E Not recorded as lease Correct Answer Incorrect Answer

      Solution

      Under Ind AS 116, leases are capitalized with Right-of-Use assets and corresponding lease liabilities. Depreciation on the asset and interest on liability appear in the P&L, while the asset and liability affect the balance sheet.

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