Uzbek NAS No. 6 “Lease Accounting”: Requirements Explained

Who applies the standard and what it does not cover

NAS No. 6 sets the method for recording lease transactions for business entities, except budget organizations, banks and non-bank credit organizations (para 1). Entries are made under the Chart of Accounts in NAS No. 21 (registration No. 3593 of 27 December 2024), as para 1¹ expressly states.

• the standard does not apply to lease agreements for exploring and using natural resources such as oil, natural gas and other non-renewable resources (para 2(a));
• it does not apply to licence agreements for intellectual property (para 2(b));
• leases under IFRS (IFRS 16) work differently — almost any contract gives the lessee a right-of-use asset; we cover that model in a separate article on IFRS 16.

Finance or operating: the criteria in para 6

A finance lease is the transfer of property for possession and use for more than twelve months, and the contract must meet at least one of four conditions. If none is met, the lease is an operating lease (para 7). Leasing is a special type of finance lease in which the lessor buys the property from a seller on the lessee’s instruction (para 8).

• ownership of the asset passes to the lessee at the end of the contract;
• the contract term exceeds 80% of the asset’s useful life, or the residual value at the end of the contract is less than 20% of the original cost;
• the lessee has an option to buy the asset at a price well below market value, and at the start of the lease it is reasonably certain the option will be exercised;
• the discounted value of lease payments exceeds 90% of the asset’s current value at the time of transfer.
• Classification is made at the start of the lease and reassessed only when the contract is changed; changes in estimates of useful life or residual value, or a lessee’s default, do not require reassessment (para 5¹).

Finance lease accounting by the lessee

At the start of the lease the lessee recognises an asset and a liability at the lower of two amounts: the asset’s current value or the discounted value of minimum lease payments (para 25). The discount rate is the rate implicit in the contract; if it cannot be determined, the lessee’s incremental borrowing rate (para 27), and if that is not available either, the official refinancing rate of the Central Bank at the start of the lease (para 24).

• the asset is recorded in account 0310 “Fixed assets received under finance lease” and the liability in account 7910 “Finance lease payable”;
• costs of delivery and bringing the asset into working condition are included in its cost (para 31), while improvement costs are capital expenditure that increases the asset’s cost (para 32); the Chart of Accounts has account 0860 for them;
• depreciation is charged by the lessee under NAS No. 5 “Fixed Assets” (para 33); if it is not certain that ownership will pass, the depreciation period is the shorter of the contract term and the useful life (para 34);
• lease interest is allocated under the payment schedule so that the rate on the outstanding liability is constant (para 30); no interest is recorded when the asset is received — it is accrued by period regardless of the payment date (para 41).

Finance lease accounting by the lessor

• the lessor recognises the asset as a receivable — again at the lower of the asset’s current value and the discounted value of minimum payments (para 38); the Chart of Accounts provides accounts 0920 (long-term portion) and 4810 (current payments receivable);
• interest income is spread over the periods so that the return on the outstanding balance is constant (para 39), and is recorded in account 9550 “Finance lease income”;
• delivery costs reimbursed by the lessee are included in the asset’s cost; costs not reimbursed are expenses of the period (para 40);
• the difference between the receivable and the carrying amount of the transferred asset is recorded as deferred income (expense) and released evenly to other income (expense) as payments accrue (para 42);
• if the lessee refuses to accept an asset already purchased, it is held in capital expenditure account 0800 until used or disposed of (para 25²).

Operating lease: off-balance-sheet account and expenses

Under an operating lease the risks of ownership do not pass to the lessee, so the asset is not on its balance sheet (para 46). The lessee records it in an off-balance-sheet account at the value in the contract; the lessor keeps it on balance sheet within fixed assets (para 47).

• lessee: off-balance-sheet account 001 “Fixed assets received under operating lease”, accrued rent in 6910 “Operating lease payable”, prepaid rent in 3110; the rent itself goes to cost of sales or period expenses depending on its purpose (para 48);
• lessor: accrued rental income is recognised as income (para 50) in account 9350 “Operating lease income”; depreciation, insurance, repairs and taxes on the asset are current expenses of the period (para 49);
• improvements to a leased asset are recorded by the lessee as capital expenditure (para 52) in account 0870; what happens to inseparable improvements depends on whether the lessor consented;
• if the contract or a supplementary agreement provides for a buy-out, once the full price is paid and ownership passes, the asset is accounted for as the lessee’s property (para 51).

What to disclose in the financial statements

Para 53 requires lease information in the financial statements and notes. Lease payables and receivables are shown separately from other balances and split into finance and operating.

• the value of assets under lease at the reporting date;
• finance lease payment obligations, with amounts and payment periods;
• significant restrictions, renewal and purchase rights;
• the balance of payments and lessor income, and the residual value the lessee has undertaken to secure;
• the method of allocating interest income, expected sublease payments and a general description of the material terms of lease contracts.

Common mistakes in applying NAS No. 6

• the contract is called a “rental”, but its terms (buy-out, a term close to useful life) make it a finance lease — the asset is not on the lessee’s balance sheet and is not depreciated;
• the finance lease liability is taken as the sum of all payments without discounting — the asset and liability are overstated and interest expense is distorted;
• leasing interest is expensed when paid rather than under the schedule;
• repairs and improvements to a leased office are expensed immediately instead of being capitalised;
• no off-balance-sheet record of operating lease assets is kept — at stocktaking and audit it is impossible to confirm which property is in use.