right of use asset meaning

A right-of-use asset is what a lessee records for its right to use a leased item — a store, an aircraft, an office — over the lease term. It sits on the balance sheet against a lease liability of broadly matching size, and it is depreciated across the term rather than expensed as rent. Before Ind AS 116 neither figure appeared at all, and a leased store showed up only as a rent line in the profit statement.

the present value of future lease payments shown on a lessee balance sheet is called the

The lease liability. Ind AS 116 requires a lessee to discount its remaining lease payments to present value and carry that total as a liability, recognising a right-of-use asset against it. For an organised retailer with several hundred leased stores, the lease liability is frequently the largest single item on the liabilities side of the balance sheet.

why did ebitda increase after ind as 116

Because rent used to be an operating cost sitting above EBITDA, and after adoption it was replaced by depreciation on the right-of-use asset and interest on the lease liability — both of which sit below EBITDA. The total cost over the life of the lease is unchanged; only its label and its position in the statement moved. That is why a lease-heavy retailer or airline could show a jump of several percentage points in EBITDA margin in the transition year with nothing happening in the business.

when did ind as 116 come into effect in india

Ind AS 116 applies to annual reporting periods beginning on or after 1 April 2019, so FY20 was the first year of the new presentation for most Indian companies. It replaced Ind AS 17 and is the Indian counterpart of IFRS 16. Any multi-year ratio series that spans that year is comparing two different accounting regimes, and most screeners carry no note saying so.

are short term leases included on the balance sheet under ind as 116

No — a lessee may take an optional exemption for short-term leases of twelve months or less and for leases of low-value assets, whose payments stay as an expense in the profit statement. Everything else is recognised as a right-of-use asset and a lease liability. The lease note in the annual report states which exemptions the company has used, alongside the maturity profile showing how much of the liability falls due within a year, within five, and beyond.

Leases on the balance sheet: what Ind AS 116 changed

Before 2019, a company that leased its stores recorded rent as an expense and nothing on the balance sheet. A company that borrowed to buy the same stores recorded an asset and a loan. Two identical businesses, two completely different balance sheets, decided by a financing choice — and analysts had to reconstruct one from the other by hand.

Think of it like this

Renting and buying the same shop

Two shopkeepers trade from identical premises. One pays ₹1 lakh a month in rent for fifteen years. The other took a loan and pays ₹1 lakh a month as an instalment. Ask which has more debt and the old answer was "the second one" — which describes the paperwork, not the obligation.

In the market

Ind AS 116 decided that a fifteen-year lease is an obligation to pay, and that the right to use the shop is an asset. Both now appear on the balance sheet, so the two shopkeepers finally look as similar as they are.

What the standard does

The mechanics

1
A lease liability appears
The present value of every future lease payment, discounted, sits on the balance sheet as a liability. For a retailer with 800 leased stores this is frequently the largest single line on the liabilities side.
2
A right-of-use asset appears opposite it
The right to occupy the space for the lease term is recorded as an asset of broadly matching size, then depreciated over the term.
3
Rent expense disappears from the profit statement
In its place come depreciation on the right-of-use asset and interest on the lease liability. The total cost over the lease is the same; its shape and its label are not.
4
EBITDA rises, mechanically
Rent used to sit above EBITDA. Depreciation and interest sit below it. The business is identical and EBITDA is materially higher — which is the change most likely to mislead anyone comparing across the transition.

Where it matters most

Sector	Effect on the balance sheet	What to watch
Aviation	Very large — aircraft leases dominate	Lease liabilities can exceed all other debt combined
Organised retail	Large — hundreds of store leases	EBITDA margins jumped on adoption with no operating change
Quick-service restaurants	Large	Same as retail; compare only post-adoption years
Hotels	Varies with owned versus leased mix	Two hotel companies can be structurally different in a way the P&L hides
Telecom	Significant — towers and fibre	Check whether the tower arrangement is a lease or a service contract
IT services, FMCG	Modest	Offices only; the effect is real but not decisive

How to read it now

Read the lease note. It gives the maturity profile — how much is due within a year, in two to five, and beyond. A liability weighted heavily to the far end is a long commitment; one due mostly within two years is closer to flexible.
Ask whether the term is real. Many Indian retail leases have short lock-ins with renewal options. The standard requires judgement about which renewals are "reasonably certain", and that judgement is management's.
Separate lease liabilities from borrowings when comparing. A lease on a profitable store is a different obligation from a term loan taken to fund a loss. Both are real; they are not interchangeable.
Prefer cash flow. The total cash going out for leases barely changed at adoption. Cash flow from operations less lease payments is closer to economic reality than any post-adoption EBITDA figure.
Distrust "pre-Ind AS 116" comparatives presented by the company. They exist to make a series look continuous, and they undo exactly the disclosure the standard was written to force.

Check yourself

A retailer's EBITDA margin rose from 8% to 12% in FY20 with no change in stores, pricing or costs. What is the most likely explanation?

Simple bhasha mein

Ek hi dukaan, kiraye pe aur kharid ke

Do dukaandaar, ek jaisi dukaan. Ek pandrah saal ke liye mahine ka ek lakh kiraya deta hai, doosra loan ki kisht. Poochho kis pe zyada karza hai — purana jawaab "doosre pe" tha, jo kaagaz batata tha, sachchai nahi. Ind AS 116 ne dono ko ek jaisa dikha diya, aur usi saal EBITDA apne aap badh gaya.

What to remember

Ind AS 116 put lease obligations and the right to use the asset onto the balance sheet.
EBITDA rose mechanically at adoption because rent moved below the line.
Debt, margin and return ratios are not comparable across the transition year.
Read the maturity profile in the lease note, not just the total.
Cash out for leases barely changed — cash flow is the honest series.

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Common questions

Short, direct answers to what people ask about this topic.

right of use asset meaning: A right-of-use asset is what a lessee records for its right to use a leased item — a store, an aircraft, an office — over the lease term. It sits on the balance sheet against a lease liability of broadly matching size, and it is depreciated across the term rather than expensed as rent. Before Ind AS 116 neither figure appeared at all, and a leased store showed up only as a rent line in the profit statement.
the present value of future lease payments shown on a lessee balance sheet is called the: The lease liability. Ind AS 116 requires a lessee to discount its remaining lease payments to present value and carry that total as a liability, recognising a right-of-use asset against it. For an organised retailer with several hundred leased stores, the lease liability is frequently the largest single item on the liabilities side of the balance sheet.
why did ebitda increase after ind as 116: Because rent used to be an operating cost sitting above EBITDA, and after adoption it was replaced by depreciation on the right-of-use asset and interest on the lease liability — both of which sit below EBITDA. The total cost over the life of the lease is unchanged; only its label and its position in the statement moved. That is why a lease-heavy retailer or airline could show a jump of several percentage points in EBITDA margin in the transition year with nothing happening in the business.
when did ind as 116 come into effect in india: Ind AS 116 applies to annual reporting periods beginning on or after 1 April 2019, so FY20 was the first year of the new presentation for most Indian companies. It replaced Ind AS 17 and is the Indian counterpart of IFRS 16. Any multi-year ratio series that spans that year is comparing two different accounting regimes, and most screeners carry no note saying so.
are short term leases included on the balance sheet under ind as 116: No — a lessee may take an optional exemption for short-term leases of twelve months or less and for leases of low-value assets, whose payments stay as an expense in the profit statement. Everything else is recognised as a right-of-use asset and a lease liability. The lease note in the annual report states which exemptions the company has used, alongside the maturity profile showing how much of the liability falls due within a year, within five, and beyond.