IFRS 16 — LEASES | STUDY GUIDE Page 1
IFRS 16
Leases
Comprehensive Study Guide
-> Core Concepts & Recognition
-> Guaranteed vs Unguaranteed Residual Value
-> Para 63 - Finance vs Operating Lease Indicators
-> Worked Example: Operating Lease (Lessee & Lessor)
-> Journal Entries & Amortisation Schedule
-> Cheat Sheet & Common Exam Traps
For study purposes only.
INTERMEDIATE LEVEL | FOR STUDY PURPOSES ONLY
, IFRS 16 — LEASES | STUDY GUIDE Page 2
Section 1
Core Concepts
What is IFRS 16?
IFRS 16 (effective 1 January 2019) replaced IAS 17. It requires lessees to bring nearly all leases onto the balance
sheet, eliminating the old operating/finance split for lessees. The core principle: if you control the right to use an
asset for a period, you must recognise an asset and a liability.
Is it a Lease? — The 3 Tests
A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in
exchange for consideration. All three conditions must be met:
• There is an identified asset (supplier has no substantive substitution right)
• Lessee has the right to obtain substantially all economic benefits
• Lessee has the right to direct how and for what purpose the asset is used
Initial Measurement
Lease Liability ROU Asset
= PV of lease payments not yet paid, discounted at the = Lease Liability
implicit rate in the lease (or IBR if implicit rate not + Initial direct costs
determinable) + Prepaid lease payments
− Lease incentives received
+ Estimated dismantling costs
Exemptions
Exemption Condition Accounting Treatment Election basis
Short-term Lease term ≤ 12 months at commencement; no
Straight-line
purchase option
expense; no B/S recognition
By class of underlying asset
Low-value Asset value ≤ ~USD 5,000 when new (e.g. laptops)
Straight-line expense; no B/S recognition
Lease-by-lease basis
For study purposes only.
IFRS 16
Leases
Comprehensive Study Guide
-> Core Concepts & Recognition
-> Guaranteed vs Unguaranteed Residual Value
-> Para 63 - Finance vs Operating Lease Indicators
-> Worked Example: Operating Lease (Lessee & Lessor)
-> Journal Entries & Amortisation Schedule
-> Cheat Sheet & Common Exam Traps
For study purposes only.
INTERMEDIATE LEVEL | FOR STUDY PURPOSES ONLY
, IFRS 16 — LEASES | STUDY GUIDE Page 2
Section 1
Core Concepts
What is IFRS 16?
IFRS 16 (effective 1 January 2019) replaced IAS 17. It requires lessees to bring nearly all leases onto the balance
sheet, eliminating the old operating/finance split for lessees. The core principle: if you control the right to use an
asset for a period, you must recognise an asset and a liability.
Is it a Lease? — The 3 Tests
A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in
exchange for consideration. All three conditions must be met:
• There is an identified asset (supplier has no substantive substitution right)
• Lessee has the right to obtain substantially all economic benefits
• Lessee has the right to direct how and for what purpose the asset is used
Initial Measurement
Lease Liability ROU Asset
= PV of lease payments not yet paid, discounted at the = Lease Liability
implicit rate in the lease (or IBR if implicit rate not + Initial direct costs
determinable) + Prepaid lease payments
− Lease incentives received
+ Estimated dismantling costs
Exemptions
Exemption Condition Accounting Treatment Election basis
Short-term Lease term ≤ 12 months at commencement; no
Straight-line
purchase option
expense; no B/S recognition
By class of underlying asset
Low-value Asset value ≤ ~USD 5,000 when new (e.g. laptops)
Straight-line expense; no B/S recognition
Lease-by-lease basis
For study purposes only.
