EAC on Lease Receivables Classification for a company engaged in leasing business

Understanding the complexities of lease receivables classification is crucial for corporations. One of the recent EAC opinion of ICAI deals with this complex subject.

A PSU under the Ministry of Railways, primarily engaged in leasing, confronts the challenge of correctly presenting 'Lease Receivables' in its financial statements.

The core issue revolves around whether these receivables should be categorized under 'Receivables' or 'Loans' in the balance sheet. Despite the company's historical classification aligning with Ind AS 17/Ind AS 116 standards, recent evaluations suggest a shift towards presenting them under 'Loans' as per Schedule III of the Companies Act, 2013.

The Expert Advisory Committee at the Institute of Chartered Accountants of India (ICAI) opines that such a presentation is not merely a formality but a reflection of the company's primary business nature—facilitating finance for asset acquisition through leasing. Consequently, the correct classification should adhere to presenting lease receivables under 'Loans' in the balance sheet.

This decision emphasizes the importance of aligning financial presentations with the true nature of business activities to ensure clarity and compliance.