PDF · Notes
AS 19 Leases: Finance Lease Conditions, Journal Entries and IRR Examples for CA Inter
- Shared by
- Divyaaa B.
- Course
- CA Inter
- Subject
- Advanced Accounting
- Added
- 8 Nov 2026
Part of: CA InterAdv Accounting
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These CA Inter Advanced Accounting notes on AS 19 Leases cover the basic meaning of a lease, how a finance lease differs from an operating lease, and the conditions that classify a lease as a finance lease. The preview also works through lessee journal entries for a finance lease, the rule for measuring the asset and liability at the lower of present value or fair value, and a worked example for calculating the internal rate of return. The notes suit students preparing the Advanced Accounting paper who want a clear, step-by-step revision of leases.
What the notes cover
The notes start with the meaning of a lease, including the lessor and lessee and the difference between a rent agreement and a sale-type arrangement with instalments. They then list the conditions under which a lease is treated as a finance lease, such as transfer of ownership, a reduced-price purchase option, lease term covering economic life, and present value of lease payments covering fair value. The preview also shows the lessee journal entries for a finance lease and the additional points on interest rate and IRR.
How to use them for revision
Read the classification conditions first, then go through the journal entries in order, noting which accounts are debited and credited at inception, on payment of instalments, and at depreciation and year end. The IRR example is useful practice: compute present values at two discount rates, then interpolate to find the rate. Working through the example by hand helps with the numerical questions that often appear in exams.
Who should read them
These notes are meant for CA Inter students studying Advanced Accounting who need a focused revision of AS 19. They are also useful for students who find the finance lease classification and lessee accounting confusing and want worked figures to follow. The full 16-page note adds the remaining examples and entries, which can be opened free in the Studycaller app.
Key topics in these notes
- Meaning of lease and types of leases
- Conditions for finance lease
- Lessee journal entries for finance lease
- Lower of PV of minimum lease payments and fair value
- Incremental borrowing rate and IRR
- Interpolation for IRR calculation
- Depreciation on leased asset
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Frequently asked questions
What are the conditions for a finance lease under AS 19?
A lease is a finance lease if it transfers substantially all risks and rewards of ownership, and at least one condition is met, such as ownership transfer at lease end, a bargain purchase option, lease term covering most of the asset's economic life, or present value of payments covering fair value.
How is the lessee's asset and liability measured in a finance lease?
The asset is recorded at the lower of the present value of minimum lease payments or the fair value of the asset, as explained in the notes.
How is IRR calculated in the lease example?
The notes compute present values of the lease rentals at two discount rates, then use interpolation between the two rates to find the internal rate of return.
Can I read the full AS 19 leases note?
Open it free in the Studycaller app to read the full note.