LESSEE ACCOUNTING
●
●
IFRS 16
Appendix A
contract/part:right to use
the underlying asset for a
period of time in exchange
for consideration
Appendix B9
To be a lease:right to
control the use of an
identified asset
Appendix B13
explicitly/implicitly
specified when made
available to the customer
RIGHT TO CONTROL THE USE OF AN ASSET
1. Obtain substantially all of the economic benefits
- Exclusive use
- Using, holding/subleasing the asset
2. Direct use of the identified asset
- If and only if:when the customer has the right to
direct how and for what purpose the asset is used
throughout the period of use
FINANCE LEASE MODEL FOR LESSEE
●
1.
2.
●
OPERATING LEASE MODEL FOR LESSEE
Recognize at commencement date
Right of use asset
Lease liability
All leases shall be accounted for by the lessee
as a finance lease under the new lease standard
Not recognize an asset and lease liability in 2
optional exemptions
1. Short term lease
2. Low value lease
SHORT TERM LEASE
●
●
●
●
12 mos/less at the commencement date of the lease
Lease contains purchase option = not a short term
Election = shall be made by class of underlying
asset
Class - similar nature
LOW VALUE LEASE
●
●
●
●
●
Does not provide for a quantitative threshold to
be considered low value = matter of professional
judgment
Assess value of asset = when it is new regardless
of the asset being leased
Not recognized = not of low value when new
Ex. personal computers, office furniture, eqpt
The election for low value lease is made on a
lease by lease basis
FINANCE LEASE - LESSEE
●
Lease that transfers substantially all risks &
rewards incidental to ownership of an underlying
asset
INITIAL MEASUREMENT OF RIGHT OF USE ASSET
●
At cost at commencement date
Cost of right of use asset:
1. PV of lease payments/initial measurement of the
lease liability
2. Lease payments made to lessor at/before
commencement date (lease bonus - lease incentives
received)
3. Initial direct cost incurred by lessee
4. Estimate of cost of dismantling, removing and
restoring
●
●
Leasehold improvements - not initial direct
costs; PPE, depreciated over the shorter between
the lease term and the life of the improvements
Security deposit refundable upon lease expiration
- accounted for as an asset by the lessee
SUBSEQUENT MEASUREMENT
●
●
At cost model
CA of right of use asset = adjusted for any
remeasurement of the lease liability
PRESENTATION OF RIGHT OF USE ASSET
●
Separate line item in SOFP
OTHER MEASUREMENT MODEL
●
●
If FV model to I/P = FV model right of use asset
If revaluation model PPE = all of right of use
assets PPE
DEPRECIATION OF RIGHT OF USE ASSET
● Normal depreciation policy
● Depreciate = over useful life of asset
1. The lease transfers ownership of the underlying
asset to the lessee at the end of the lease term
2. The lessee is reasonably certain to exercise a
purchase option
●
-
If conditions are not met:
Depreciate: shorter between the useful life of
the asset and the lease term
MEASUREMENT OF LEASE LIABILITY
●
PV of lease payments at commencement date
1. IRI - interest rate that causes PV of lease
payment and unguaranteed residual value == FV of
underlying asset and initial direct cost of
lessor
2. IBR - rate that the lessee would have to pay to
borrow funds necessary to obtain a similar asset
over a similar term and similar security
COMPONENTS OF LEASE PAYMENTS
1. Fixed lease payment
2. Variable lease payments
3. Exercise price of purchase option - if conditions
met
4. Amount expected to be payable by the lessee under
a residual value guarantee
5. Termination penalty - if exercised termination
option
DEFINITIONS
Fixed payments
Payments made
Variable payments
Payments made that vary
because of changes
occurring after the
commencement date other
than passage of time
Residual value guarantee
Guarantee made by a party
unrelated = value would be
at least a specified
amount
Unguaranteed residual
value
Guaranteed made by a party
related-realization not
assured
Executory costs
Ownership
expenses=expensed:maintena
nce, taxes & insurance
LEASE TERM
●
Noncancelable period
1. Option to extend the lease - if certain to
exercise extension option
2. Option to terminate the lease - if certain not to
exercise termination option
DISCLOSURES - LESSEE