Case: Under a finance lease, the fair value of a machine taken by Ruchi Packaging Ltd is ₹5,00,000 and the present value of minimum lease payments, discounted at the interest rate implicit in the lease, is ₹4,85,000. At the inception of the lease, the lessee should recognise the asset and liability at:

Correct answer: A) ₹4,85,000

Explanation

AS 19 requires the lessee to recognise a finance lease as an asset and a liability at the lower of the fair value of the leased asset and the present value of the minimum lease payments at the inception of the lease. Lower of 5,00,000 and 4,85,000 is ₹4,85,000, and the asset and liability are recorded at the same amount.