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)
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)
