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IFRS 16 Lease Accounting Guide

Lease is a contract that conveys the right to use an asset for a period of time in exchange for consideration. For a lessee, the initial measurement of a right-of-use asset and lease liability is based on the present value of lease payments, initial direct costs, and estimated dismantling costs. The lease liability is subsequently measured by reducing the balance for lease payments and increasing it for interest. The right-of-use asset is depreciated unless there is reasonable certainty of obtaining ownership at the end of the lease, in which case it is depreciated over its useful life.

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119 views2 pages

IFRS 16 Lease Accounting Guide

Lease is a contract that conveys the right to use an asset for a period of time in exchange for consideration. For a lessee, the initial measurement of a right-of-use asset and lease liability is based on the present value of lease payments, initial direct costs, and estimated dismantling costs. The lease liability is subsequently measured by reducing the balance for lease payments and increasing it for interest. The right-of-use asset is depreciated unless there is reasonable certainty of obtaining ownership at the end of the lease, in which case it is depreciated over its useful life.

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Lease - is a contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for

consideration (IFRS 16)


> there is an identified asset
> contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration

Lease Term - non-cancelable period of lease


> option to renew
> option to terminate

BOOKS of LESSEE
Initial Measurement - at COST
a. PV of Lease payments
b. b. Lease payments made to the lessor at or before commencement date, less any incentives received
c. c. Initial direct cost
d. d. Any estimated costs for dismantling and removing the asset

Right of use Asset xx


Cash xx
Lease Liability- (PV of lease payments) xx
Provision for Decommissioning cost xx

Lease liability shall be measured at commencement date at the present value of the lease payments that are not yet
paid at that date, discounted using:
1. implicit interest rate
2. incremental borrowing rate

Subsequent measurement of Lease liability

Lease Liability xx
Interest Expense xx
Cash xx
(Payment other than at commencement of the lease term)

If year-end does not coincide with the date of periodic payment,

Interest Expense xx
Lease Liability xx

Subsequent measurement of the right of use asset

lessee records depreciation on the leased asset if there isa reasonable certainty that the lease will obtain
ownership by the end of the lease term.

There is reasonable certainty that the lease will obtain ownership by the end of the lease term if:
- if the contract provides for transfer of title at the end of the lease term or contract contains bargain purchase
option
Depreciation shall be computed considering the asset’s residual value at the end of useful life.

If there is no reasonable certainty, the right of use asset must be depreciated over the shorter between lease
term and the asset’s remaining useful life. Only the guaranteed residual value shall be deducted from the
undepreciated cost to arrive at the depreciable amount.
If the right of asset refers to a class of property, plant and equipment, a lessee may elect to apply the
revaluation model to all the right of use assets that relate to class of PPE

If right of use of asset is an investment property and the lessee apply the fair value model to its investment
property, the lessee shall apply that fair value to all right-of -use asset that meet the definition of investment
property.

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