IFRS 16 Leases

IFRS 16 Lease term explained

IFRS 16 Lease term explained or the lease term includes the following items (IFRS 16 18):

  • non-cancellable period of a lease; IFRS 16 Lease term explained
  • periods covered by an option to extend the lease – if the lessee (customer) is reasonably certain to exercise that option; and
  • periods covered by an option to terminate the lease – if the lessee (customer) is reasonably certain not to exercise that option.

The lease term should not go beyond the ‘enforceable period’ which lasts up to a point when both parties have the right to terminate the lease without permission from the other party with no more than an insignificant penalty (IFRS 16 B34).

Legal framework in a given country … Read more

IAS 36 What is a lease impairment?

IAS 36 What is a lease impairment? IAS 36 What is a lease impairment

Simple, it is a right-of-use asset and will frequently be included in a cash generating unit to be tested for impairment.

The right-of-use-asset

At initial recognition, the right-of-use-asset equals the recognised lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received, plus any initial direct costs incurred by the lessee and an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset and restoring the site on which the leased asset is located.

Lease liability

The most significant part of the right-of-use asset will often be the lease liability, which is the … Read more

Impairment testing cash generating unit with leases

Impairment testing cash generating unit with leases is about a right-of-use asset (leased asset) and  such an asset will frequently be included in a cash generating unit to be tested for impairment. At initial recognition, the right-of-use-asset equals the recognised lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received, plus any initial direct costs incurred by the lessee and an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset and restoring the site on which the leased asset is located.

The most significant part of the right-of-use asset will often be the lease liability, which is the present value of the lease payments discounted … Read more

Calculations IFRS 16 Leases

Calculations IFRS 16 Leases is a case regarding fixed lease payments depending on an index and rent-free period. This case is rather simple, fixed payments depending on an index and rent-free period. Here are only included the journal entries to be made at the inception of the lease contract.

This contract comprises a lease contract for the lease of office space, archive space, inside garage space and outside parking places. The contract consist of special and general conditions. The special conditions prevail the general conditions. Calculations IFRS 16 Leases

The lease contract has a lease term of 12 consecutive years (144 months), starting date is 1 March 2015, ending date is 28 February 2027. Tacit renewal of the agreement Read more

IFRS 16 Leases

Introduction

IFRS 16 Scope

IFRS 16 Leases was introduced by IASB in January 2016. IFRS 16 Leases is effective for periods beginning on or after 1 January 2019. Early adoption is allowed, but only in conjunction with IFRS 15 Revenue from Contracts with Customers because significant interactions are likely. This standard will significantly change how lessees account for leases as it removes the distinction between operating and finance leases (around 85% of lease contracts are operating leases). For lessors, IFRS 16 will only have minor effects.

Preceding IFRS

IFRS 16 Leases replaces four standards and interpretations on leases, IAS 17 Leases, IFRIC 4 Determining when an Arrangement contains a Lease, SIC 15 Operating Leases – Incentives and SIC … Read more

IFRS 16 Right to direct the use of the identified asset

[IFRS 16 B24] IFRS 16 Right to direct the use of the identified asset 

Requiring a customer to have the right to direct the use of an identified asset is a change from IFRIC 4. A contract may have met IFRIC 4’s control criterion if, for example, the customer obtained substantially all of the output of an underlying asset and met certain price-per-unit-of-output criteria even though the customer did not have the right to direct the use of the identified asset as contemplated by IFRS 16. Under IFRS 16, such arrangements would no longer be considered leases.

A customer has the right to direct the use of an identified asset throughout the period of use when either: IFRS 16 Right to direct the use of the identified asset 

  • The customer has the right to direct how and for what purpose the asset is used throughout the period of use. IFRS 16 Right to direct the use of the identified asset 

  • The relevant decisions about how and for what purpose an asset is used are predetermined and the customer either: (1) has the right to operate the asset, or to direct others to operate the asset in a manner that it determines, throughout the period of use, without the supplier having the right to change those operating instructions; or (2) designed the asset, or specific aspects of the asset, in a way that predetermines how and for what purpose the asset will be used throughout the period of use.

The right to direct how and for what purpose an asset is used throughout the period of use

[IFRS 16 B25 – B27] IFRS 16 Right to direct the use of the identified asset 

A customer has the right to direct the use of an identified asset whenever it has the right to direct how and for what purpose the asset is used throughout the period of use (i.e., it can change how and for what purpose the asset is used throughout the period of use). How and for what purpose an asset is used is a single concept (i.e., ‘how’ an asset is used is not assessed separately from ‘for what purpose’ an asset is used).Read More »IFRS 16 Right to direct the use of the identified asset