Summary IFRs 16

IFRS 16 Leases

Definitions
 Inception date- The earlier of the date of
 lease agreement and
 the date of commitment by the parties to the Ts & Cs of
the lease.
 Commencement date- The date on which a lessor makes an underlying asset
available for use to a lessee- When lessee can start using the asset

General
 IRFS 16 uses Single lessee accounting model- no more distinction between finance
leases and operating leases for lessee
 Lessor still needs to distinguish between finance lease and operating lease
 Land or buildings leased out by lessor is still investment property for the lessor (IAS 40)
Finance lease- property transfers to
Par 9 lessee at end of lease period
 A contract is a lease if the contract conveys the Operating lease – does not transfer
1. right to control the use of
2. an identified asset for a period of time
3. in exchange for consideration (given for FRK 201)


Par 12-17
 Lease payments have to be apportioned between the lease, and other components
(which is dealt with in other standards)- e.g. payment made for right of use of asset,
but also for maintenance expenditure
 Have to account for lease and non-lease components separately
 Have to spilt based stand-alone selling prices
 Base stand-alone SP on price lessor would charge for similar component
separately
 If not readily available, then estimate

Example
Annual lease payments (incl maintenance) 200 000
Maintenance 20 000
Similar maintenance services 25 000
PMT
჻ Amount allocated to lease component = 200 000 – 25 000 = 175 000
 However, lessee can elect practical expedient(not available to lessor), Par 15
 does not need to split lease and non-lease component
 thus account as 1 single component
 explicitly mentioned that it has been elected in question




Par 18-19
 lease term is the non-cancellable period of a lease, together with both:
a) periods covered by an option to extend the lease if the lessee is reasonably
certain to exercise that option; and

, b) periods covered by an option to terminate the lease if the lessee is reasonably
certain not to exercise that option
 To determine lease term, must look at all relevant facts and circumstances that create
a significant economic incentive to exercise an extension option. If it does, then the
lease term would include to extension period
 Must make decision at commencement date regarding extension options
Par B37-40- Examples of economic incentives
 Reduction in amount of lease payment
 Services free of charge
 Any condition that creates favourable conditions for lessee

Recognition
Par 22
 At the commencement date a lessee shall recognise a right-of-use asset and a
lease liability
Dr Right of use asset (must indicate which asset)
Cr Lease liability

Par 5-8 - recognition exemption
 A lessee may elect not to apply the requirements in paragraphs 22–49 to:
(a) short-term leases (non-cancellable period less than 12 months and
(b)lease for which the underlying asset is of low value
 The lessee can benefit from it on its own or together with other resources
that are readily available to the lessee, and
 The underlying asset is not highly dependent on, or highly interrelated
with other assets
 Examples
 Tablets
 Personal computers
 Small office furniture
 Telephones
 If any party has the option to terminate the lease within one year, it can constitute a
short-term lease
 If exemption is elected:
 Lease payments are recognised as expense on a
 straight-line basis over lease term or
 another systematic basis if it better represents the pattern of
the lessee’s benefit
 Par 12 (splitting between lease and non-lease agreement) always applicable, even if
the recognition exemption is elected (unless practical expedient is elected)




Dr Lease expense (P/L)
Cr Bank (SFP)