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PSAK 73 Leases

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PSAK 73 Leases
Grant Thornton Indonesia
16 January 2019
Pullman Hotel, Jakarta
Agenda
•
•
•
•
•
2
PSAK 73 overview
Lessee accounting
Lessor accounting
Presentation and disclosures
Transition requirements
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Scope (PSAK 73.03)
✓ All leases
✓ Right-of-use assets in a
sublease
 Leases to explore minerals, oil, gas
etc
 Leases of biological assets within
PSAK 69
 Licences of intellectual property
within PSAK 72
 Rights held by lessees under
licensing agreements within ISAK 16
 Service concession arrangements
within ISAK 16
 Licenses of intangible assets within
PSAK 19
3
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Overview of main changes
• Replaces PSAK 30 ‘Leases’, ISAK 8 ‘Determining whether an
Arrangement contains a Lease’, ISAK 23 ‘Operating LeasesIncentives’, ISAK 24 ‘Evaluating the Substance of Transactions
Involving the Legal For of a Lease’ and ISAK 25 ‘Land Rights’
(PSAK 73.C21)
• New lease definition
• Lessee accounting significantly impacted – most leases
recognised on the balance sheet
• Lessor accounting – largely unchanged
• Sale and leaseback transactions – accounting based on whether
the transfer is a sale (i.e., a performance obligation under PSAK
72)
• New disclosure requirements
4
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Lessee accounting—the Big Picture
Statement of financial
position
• For substantially all
leases, recognise:
– right-of-use (ROU) asset
– lease liability
5
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Statement of financial
performance
• Recognise:
– depreciation expense on
ROU asset
– interest expense on lease
liability
PSAK
73.9
"A contract, or part of a contract, that
conveys the right to use an asset (the
underlying asset) for a period of time in
exchange for consideration"
Identifying a lease
Is there an identified asset?
No
Yes
Does the customer have the right to
obtain substantially all of the economic
benefits from the use of the identified
asset throughout the period of use?
Control
No
Yes
Does the customer have the right to direct
the use of the identified asset throughout
the period of use?
Contract
is not
(does not
contain) a
lease
No
Yes
Contract is (contains) a lease
6
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Assessment
performed at
lease inception
What is the contract? — A unit of account question
• PSAK 73 will sometimes
be applied to a:
– component of a contract
(for a contract with lease
and non-lease
components)
– combination of contracts
representing a single
lease, or
– portfolio of leases (as a
practical expedient)
7
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Lease term
Lease term includes (PSAK 73.18)
1.
non-cancellable period of the lease;
2.
optional extension periods, if lessee is reasonably certain to exercise
the option; and
3.
periods covered by option to terminate lease, if lessee is reasonably
certain NOT to exercise the option
Facts and circumstances to consider
Contractual/
market
8
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Asset-specific
Lessee accounting—Recognition exemptions
Short-term leases
(< 12 months)
•
•
•
•
•
9
Election made by class of underlying
asset
Determination of ‘short-term’
depends on lease term
Lease that contains purchase option
cannot be considered short-term
lease
Treat any lease modifications or
changes in lease term as new lease
Disclose short-term lease expense
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Low-value assets
•
•
•
•
•
Election available on lease-by-lease
basis
No explicit definition of 'low-value'
assets
Assessment based on the value of
asset when new, regardless of age
of leased asset
Highly dependent / interrelated
assets do not qualify
Head leases do not qualify
Initial measurement
Lease liability
(PSAK 73. 27)
ROU asset
(PSAK 73.24)
Fixed payments less lease
incentives receivable over the
lease term
Initial amount of lease liability
Prepaid lease payments
Variable payments (based on
rate/index)
Lease incentives received
Expected payment under
residual value guarantee
Initial direct costs
Purchase options
Termination costs
10
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Estimated costs to dismantle,
remove, or restore, measured
in accordance with PSAK 57
Discount rate
Present value of lease
payments
Present value of
unguaranteed residual
value
Fair value
underlying asset
Initial direct costs
If the rate implicit in the lease can not be determined, lessee uses incremental
discount rate with similar characteristics
Practical
Expendient
#3
11
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Variable payments
12
Type of payment
Initial Accounting
Subsequent Accounting
Variable lease payments
that depend on an index
or a rate
Include in lease liability
and asset based on level
of index/rate at the
commencement date
Adjust lease liability and
asset when revised
index/rate changes the
lease payments (using
original discount rate)
Other variable lease
payments (e.g payments
linked to sale or usage)
Exclude from lease
liability and asset
Recognise an expense in
the period that the event
or condition that triggers
the payments occurs
In-substance fixed lease
payments
Treat as fixed lease
payments
Treat as fixed lease
payments
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Variable lease payments that depend on an index
Example 14a
• 10-year lease of a property, lease payments Rp 50k pa, payable beginning
year
• Lease contracts stipulates lease payments shall increase every 2-year based
on the basis of the increase in the Consumer Price Index for the preceding 24
months. CPI at the commencement date is 125
• Implicit discount rate is not determinable, incremental borrowing rate 5%pa.
14.1 Assume CPI at the beginning Y3 increase to 135, What is the new lease payment
amount?
The payment for the remaining eight annual lease payments,
adjusted for the CPI, is Rp 54k (Rp 50k × 135 ÷ 125)
13
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Variable lease payments that depend on an index
Example 14a
14.2 What are the journals to recognise the increase in lease liability?
Lessee remeasures the lease liability at Rp 366,464 (PV Rp 54k, n8, i5%).
Lessee increases the lease liability by Rp 27,145, (Rp 366,464 – Rp 339,319
previous carrying amount)
Dr.
Right-of-use asset
Cr.
Rp 27,145
Lease liability
Rp 27,145
14.3 What are the journals to recognise the lease
payment at the beginning of the third year?
Dr.
Lease liability
Cash
14
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Cr.
Rp 54,000
Rp 54,000
Subsequent measurement
Lease liability
Initial value
Interest accrued
Lease payments
Remeasurements
ROU asset
1. Cost model PSAK 16
Remeasurement
2. Revaluation model PSAK 16
Depreciation
3. Fair value model PSAK 13
Impairment
15
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Initial measurement of the right-of-use asset and
the lease liability
Example 13a
• 10-year lease of an office space, option to extend 5-year, option to extend is
not reasonably certain
• Lease payments Rp 50k pa first 10 years, Rp 55pa extended period, payable
beginning year
• Initial direct cost Rp 20k, Rp 15k to a former tenant and Rp 5k commission
fee (reimbursed to lessor)
• Implicit discount rate is not determinable, incremental borrowing rate 5%pa.
What are JEs required to initially
recognise the lease assets and
liabilities?
16
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Initial measurement of the right-of-use asset and
the lease liability
Example 13a – Answer
What are JEs required to initially recognise the lease
assets and liabilities?
Dr.
Right-of-use asset (Rp 355,391 + Rp 50,000)
Cr.
Rp 405,391
Lease liability (PV50,000, n9, i5%)
Rp 355,391
Cash (lease payment for the first year)
Rp 50,000
Right-of-use asset
Rp 20,000
Cash (initial direct costs)
Cash (lease incentive)
Right-of-use asset
17
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Rp 20,000
Rp 5,000
Rp 5,000
Subsequent measurement and accounting for a
change in the lease term
Example 13b
• In 6th year, Lessee acquired Entity A which lease office
space in other building. The lease has termination option.
• Lessee needs another floor after the acquisition.
• To minimize cost, Lessee: a) enters a separate 8-year lease
of the other floor available for use at the end of Y7; b)
terminates the lease of Entity A at the beginning of Y8.
13b.1 What impact does this event have on the
Lessee’s original lease, if any?
13b.2 Assume incremental borrowing cost end Y6
is 6%pa. How will this impact the right-of-use asset and
lease liability at end Y6?
18
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Subsequent measurement and accounting for a
change in the lease term
13b.1 What impact does this event have on the Lessee’s
original lease, if any?
• The acquisition and relocation of Entity A is a significant event
that affects whether Lessee is reasonably certain to exercise
the extension option not previously included in its
determination of the lease term.
• Lessee would incur additional costs if it were to lease a similar
floor in a different building because the workforce would be
located in different buildings.
• Consequently, at end of Y6, Lessee concludes that
it is now reasonably certain to exercise the option to
extend its original lease as a result of its acquisition
and planned relocation of Entity A.
19
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Subsequent measurement and accounting for a
change in the lease term
13b.2 Assume incremental borrowing cost end Y6 is 6%pa. How will this
impact the right-of-use asset and lease liability at end Y6?
The right-of-use asset and the lease liability from Y1 to Y6 are:
Lease liability
Year
20
Beginning
balance
Rp
Lease
payment
Rp
Right-of-use asset
5% Interest
expense
Rp
Ending
balance
Rp
Beginning
balance
Rp
Depreciation
charge
Rp
Ending
balance
Rp
1
355,391
-
17,770
373,161
420,391
(42,039)
378,352
2
373,161
50,000
16,158
339,319
378,352
(42,039)
336,313
3
339,319
50,000
14,466
303,785
336,313
(42,039)
294,274
4
303,785
50,000
12,689
266,474
294,274
(42,039)
252,235
5
266,474
50,000
10,823
227,297
252,235
(42,039)
210,196
6
227,297
50,000
8,865
186,162
210,196
(42,039)
168,157
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Subsequent measurement and accounting for a
change in the lease term
The right-of-use asset and the lease liability from Y7 to Y15 are:
Lease liability
Right-of-use asset
7
Beginning
balance
Rp
378,174
Lease
payment
Rp
50,000
6% Interest
expense
Rp
19,690
Ending
balance
Rp
347,864
Beginning
balance
Rp
360,169
Depreciation
charge
Rp
(40,019)
Ending
balance
Rp
320,150
8
347,864
50,000
17,872
315,736
320,150
(40,019)
280,131
9
315,736
50,000
15,944
281,680
280,131
(40,019)
240,112
10
281,680
50,000
13,901
245,581
240,112
(40,019)
200,093
11
245,581
55,000
11,435
202,016
200,093
(40,019)
160,074
12
202,016
55,000
8,821
155,837
160,074
(40,019)
120,055
13
155,837
55,000
6,050
106,887
120,055
(40,019)
80,036
14
106,887
55,000
3,113
55,000
80,036
(40,019)
40,018
15
55,000
55,000
-
-
40,018
(40,019)
-
Year
Dr.
Right-of-use asset (Rp 360,169 - Rp 168,157)
Lease liability (Rp 378,174 - Rp 186,162)
21
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Cr.
Rp192,012
Rp192,012
Lease modification
Example 15 – Modification separate contract
• 10-year lease contract of office space (2,000m2)
• Lease contract modified at Y6 to increase additional 3,000m2 at
the same building for the remaining 5-year lease, available at the
end of Q2 of Y6
• No additional cost which normally charged for new tenant
How should the lease modification be accounted for?
• Lessee accounts for the modification as a separate lease
• The modification grants Lessee an additional right to use an
underlying asset, and the increase in consideration for the
lease is commensurate with the stand-alone price of the
additional right-of-use
22
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Lease modification
Example 16 – Modification lease term (extension)
• 10-year lease contract of office space (5,000m2), annual lease payments Rp 100,000
payable at end of year, incremental borrowing rate 6%pa
• Beginning Y7, extending lease term 4 years, without changing annual lease payments
during Y7-Y14, incremental borrowing rate 7%pa
How should the lease modification be accounted for?
• Lessee remeasures the lease liability based on: (a) an 8-year remaining lease term,
(b) annual payments of Rp 100,000 and (c) Lessee’s incremental borrowing rate of 7%
per annum. The modified lease liability equals Rp 597,130. Carrying amount of the
lease liability before the modification was Rp 346,511.
• Lessee recognises the difference Rp 250,619 as an adjustment to the
right-of-use asset.
23
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Lease modification
Example 17 – Modification lease term (reduction)
• 10-year lease contract of office space (5,000m2), annual lease payments Rp
50,000 payable at end of year, incremental borrowing rate 6%pa
• Beginning Y6, reduction office space to 2,500m2 starting from end of Q1 Y6,
annual lease payments Rp 30,000 during Y6-Y10, incremental borrowing rate
5%pa
How should the lease modification be accounted for?
• Lessee remeasures the lease liability based on: (a) 5-year remaining lease term,
(b) annual payments of Rp 30,000 and (c) Lessee’s incremental borrowing rate of
5% per annum. The modified lease liability equals Rp 129,884.
• Lessee determines the proportionate decrease in the carrying amount
of the right-of-use asset on the basis 50% of the original right-of-use
asset (Rp 184,002) is Rp 92,001. 50% of the pre-modification lease
liability (Rp 210,618) is Rp 105,309.
24
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Lease modification
Example 17 – Modification lease term (reduction)
• Lessee reduces the carrying amount of the right-of-use asset by Rp
92,001, the carrying amount of the lease liability by Rp 105,309 and
recognises Rp 13,308 as gain in profit or loss at the beginning of Y6.
• Lessee recognises the difference between the remaining lease liability of
Rp 105,309 and the modified lease liability of Rp129,884 (which equals
Rp 24,575) as an adjustment to the right-of-use asset reflecting the
change in the consideration paid for the lease and the revised discount
rate
25
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Lease modification
Example 19 – Modification consideration
•
10-year lease contract of office space (5,000m2), annual lease payments Rp 100,000
payable at end of year, incremental borrowing rate 6%pa
•
Beginning Y6, annual lease payments reduces to Rp 95,000 during Y6-Y10, incremental
borrowing rate 7%pa
How should the lease modification be accounted for?
• Lessee remeasures the lease liability based on: (a) 5-year remaining lease
term, (b) annual payments of Rp 95,000 and (c) incremental borrowing rate of
7%pa.
• Lessee recognises the difference between the carrying amount of the
modified liability (Rp 389,519) and the lease liability immediately
before the modification (Rp 421,236) of Rp 31,717 as an
adjustment to the right-of-use asset.
26
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Agenda
•
•
PSAK 73 overview
Lessee accounting
•
•
•
Lessor accounting
Presentation and disclosures
Transition requirements
27
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Lessor accounting
• Lessor accounting requirements are similar to PSAK 30's:
– the distinction between finance and operating leases is retained
– the definitions of each type of lease, and the supporting indicators
of a finance lease, are substantially the same
– the basic accounting mechanics are also similar, but with some
different/more explicit guidance in a few areas such as sub-leases
Finance lease
Operating lease
28
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Sub-lease
Intermediate lessor:
▪ Accounts for head lease and
sublease as two separate
contracts.
▪ Classifies the sublease based on
the ROU asset arising from the
head lease.
Head lessor
Original lessee /
intermediate lessor
▪ Recognises lease assets and
lease liabilities gross – unless
offset criteria met.
▪ Recognises lease income and
lease expense gross – unless
acting as agent.
29
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Sub-lessee
Sale-and-leaseback
Determine whether the transfer of
the asset is a sale
.
Transfer is a sale
Seller-lessee will:
• derecognise the underlying asset
• recognise the sale at fair value
• recognise only the gain/loss that
relates to the rights transferred to
buyer-lessor
• recognise a ROU asset as
proportion of previous carrying
amount of underlying asset
• recognise a lease liability
30
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•
•
Apply PSAK 72
Presence of a leaseback
does not preclude a sale
Failed sale
Seller-lessee will:
• not derecognise the underlying
asset
• recognise a financial liability –
PSAK 71
Buyer-lessor will:
• not recognise the transferred asset
• recognise a financial asset – PSAK
71
Agenda
•
•
PSAK 73 overview
Lessee accounting
•
•
•
Lessor accounting
Presentation and disclosures
Transition requirements
31
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Presentation
Statement of financial
position
Statement of profit or
loss
Cash flow statement
ROU assets → own line
item or combine with
PP&E*
Interest expense →
include with other
finance costs
Cash payments of lease
liabilities → financing
activities
Lease liabilities →
separately or combine
with other liabilities
Amortization of ROU
assets → separately, not
combined with interest
expense
Cash payments for
interest → in
accordance with PSAK 2
requirements for interest
paid
Short-term, low-value
and variable lease
payments → operating
activities
*This requirement does not apply to ROU assets that meet the definition of investment property – present in the
statement of financial position as investment property
32
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Disclosure – lessees
Disclosure objective:
To enable users of financial statements to assess the effect leases have on
the financial position, financial performance and cash flows of the lessee.
•
•
•
•
•
•
•
Breakdown of lease expense
Total lease cash outflows
Additions to ROU assets
Gains or losses from sale and leasebacks
Maturity analysis of lease liabilities
Carrying amount of ROU assets by class of underlying asset
Additional information, if relevant (e.g., extension and termination
options, variable lease payments (VLPs), residual value
guarantees)
• Single location; table of quantitative disclosures
33
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Agenda
•
•
PSAK 73 overview
Lessee accounting
•
•
•
Lessor accounting
Presentation and disclosures
Transition requirements
34
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Mandatory date
Effective date (PSAK 73.C01)
Effective date
Annual periods beginning on or after 1 January 2020
and interim periods within those annual periods
Early adoption?
Permitted
35
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Transition overview
1. Identify population of contracts for transition (1)
▪
▪
Decide whether to reassess the definition of a lease
Decide whether to apply recognition exemptions
2. Decide transition method
Cumulative catch-up approach
Full retrospective (PSAK 25)
OR
3. Identify population of contracts for transition (2)
▪
36
Decide whether to apply short-term transition practical expedient
4. Measure lease liability
5.
Decide whether to apply PEs for:
▪ Portfolio discount rate
▪ Use of hindsight
Decide whether to apply PEs for:
▪ ROU asset = lease liability
▪ Onerous leases
▪ Initial direct costs
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Measure ROU asset
Identifying the population of contracts for
transition
Election
1.
Apply PSAK 73 definition to all
contracts
Practical
Expedient #1
2.
37
Cost
OR
Grandfather existing (PSAK 30)
contracts and apply PSAK 73
definition to new or modified
contracts only
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1.
Comparability
Applying the recognition exemptions
1.
PSAK 73.6
1. Short-term leases – less than 12 months
2. Leases for which the underlying asset is of low value*
* ‘Low value’ is subjective and the DSAK has deliberately not defined a numeric value.
38
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Deciding on the transition method
2.
Lease type under PSAK 30
Operating lease
Finance lease
Full retrospective
Transition
options
Cumulative catch-up**
Cumulative catch-up
High
Medium
Impact
** With practical expedients
39
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Transition options timeline
Transition approach
2019
2.
2020
Date of equity
adjustment
Full
retrospective*
PSAK 73
PSAK 30
PSAK 73
1 Jan 19
Modified
retrospective**
PSAK 30
PSAK 73
1 Jan 20
Application of PSAK 73:
* Retrospectively to each prior reporting period in accordance with PSAK 25
** Do not restate prior periods; cumulative effect recognized at date of initial application
40
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Transition—Finance leases under PSAK 30
Identify
population
Apply lease definition for all leases
PE #1
Low value/short-term recognition exemption
Select transition option
Apply the
Standard
Modified retrospective
ROU asset at
DOIA = carrying
amount of
leased asset
under PSAK 30
41
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Lease liability at
DOIA = carrying
amount lease
liability under
PSAK 30
Full retrospective
Apply PSAK 25
Transition—Operating leases under PSAK 30
Apply lease definition for all leases
Identify
population
PE #1
Low value/short-term recognition exemption
Select transition option
Apply the
Standard
3.
5.
4.
Apply relief for
contracts
expiring <12
months?
PE #2
Measure lease
liability
PE #3
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Measure ROU
asset (2 options)
PE #5
PE #6
PE #4
42
Full
retrospective
Modified retrospective
Apply PSAK 25
Operating leases—Practical expedients
PE #2
3.
Account for leases expiring within
12 months as short-term leases
Only for modified
retrospective
approach
5.
4.
Lease liability
43
Lease by lease
elections
PE #3
Apply single discount
rate to leases with similar
characteristics
PE #4
Use of hindsight (e.g.,
determining lease term)
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ROU asset
PE #5
PE #6
Exclude initial direct
costs from ROU asset
measurement
Onerous contracts –
alternative to performing
impairment review
Measurement of operating leases under PSAK 30
Modified retrospective method
Lease liability measurement
Measure at present value of
remaining lease payments
discounted using incremental
borrowing rate on date of
initial application
44
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ROU asset measurement
Option 1:
Measure
retrospectively
using transition
date discount
rate
Option 2:
Amount equal
lease liability
+/- prepaid/
accrued
payments
Disclosure – cumulative catch-up approach
• If a lessee elects to apply a cumulative catch-up approach,
the lessee discloses (instead of information required by
PSAK 25.28(f)):
– the weighted average lessee’s incremental borrowing rate applied
to lease liabilities at the date of initial application
– an explanation of any difference between operating lease
commitments at the end of the reporting period immediately
preceding the date of initial application and lease liabilities
recognized in the statement of financial position at the date of
initial application
45
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Example
Transition options
Full retrospective
B/S
ROU asset
•
5 year lease, entered into on 1 January 2019
•
CU100k payable on second day of each year
•
8% discount rate at lease commencement
•
12% discount rate at transition
•
Straight line depreciation of ROU asset
Cum catch-up
Retro CV for ROU asset
Jan 19 Dec 19 Dec 20 Dec 19
Cum catch-up
ROU asset = lease liability
Jan 20
Dec 20
Dec 19
Jan 20
Dec 20
431
345
259
-
323
242
-
340
255
(431)
(358)
(278)
-
(340)
(269)
-
(340)
(269)
-
(13)
(107)
-
(17)
(27)
-
-
(14)
-
-
(100)
-
(100)
-
Depreciation
(86)
(86)
-
(81)
-
(85)
Finance cost
(26)
(21)
-
(29)
-
(29)
(113)
(107)
(100)
(110)
(100)
(114)
Lease liability
Net assets
P&L
Lease expense
Profit
46
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Example
Transition options
Full retrospective
•
5 year lease, entered into on 1 January 2019
•
CU100k payable on second day of each year
•
8% discount rate at lease commencement
•
12% discount rate at transition
•
Straight line depreciation of ROU asset
ROU asset
Year
Opening
balance
Depreciation
charge
Lease liability
Closing
balance
Opening
balance
Lease
payment
8%
interest
Closing
balance
1
431
(86)
345
431
(100)
26
358
2
345
(86)
259
358
(100)
21
278
3
259
(86)
172
278
(100)
14
193
4
172
(86)
86
193
(100)
7
100
5
86
(86)
-
100
(100)
0
0
47
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•
5 year lease, entered into on 1 January 2019
• CU100k payable on second day of each year
Example
• 8% discount rate at lease commencement
Transition options
• 12% discount rate at transition
Cum catch-up
• Straight line depreciation of ROU asset
Retrospective carrying value for ROU asset
ROU asset
Year
Opening
balance
Depreciation
charge
Lease liability
Closing
balance
Opening
balance
Lease
payment
12%
interest
Closing
balance
1
404
(81)
323
2
323
(81)
242
340
(100)
29
269
3
242
(81)
161
269
(100)
20
189
4
161
(81)
81
189
(100)
11
100
5
81
(81)
-
100
(100)
0
0
48
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•
Example
•
•
Transition options
•
Cum catch-up
•
ROU asset = lease liability
5 year lease, entered into on 1 January 2019
CU100k payable on second day of each year
8% discount rate at lease commencement
12% discount rate at transition
Straight line depreciation of ROU asset
ROU asset
Year
Opening
balance
Depreciation
charge
Lease liability
Closing
balance
Opening
balance
Lease
payment
12%
interest
Closing
balance
1
2
340
(85)
255
340
(100)
29
269
3
255
(85)
170
269
(100)
20
189
4
170
(85)
85
189
(100)
11
100
5
85
(85)
-
100
(100)
0
0
49
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Not just an accounting change…
Accounting
50
• Determine transition method
• Design and implement internal controls over adoption
and transition
• Draft adjustments and disclosures
• Communicate with stakeholders
IT
• Explore need for system changes (or new systems)
• Prepare system for parallel accounting, if necessary
• Design internal controls over IT processing
Legal
• Consider changes in contract terms such as debt
covenants and the company's ability to pay dividends
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Questions and feedback
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51
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