IFRS 16 – Leases Summary
Prepared by Akash Mukesh Kumar - ACA
Leases IFRS 16 Summary
❶
Classification
Criteria
PV of Lease Payments > 90% fair value
Lessor
Perspective
All leases are “Operating Lease” by default unless any one of these
condition exist.
Lease term is > 75% of economic useful life.
Presence of bargain purchase option at end of lease term.
Compulsory Transfer
❻
Treatment of Initial Direct Cost
Specialized Asset
Lessee
Perspective
All leases are “Finance Lease” by default but there are 2 exceptions if
you want to apply.
Operating Lease
Low value lease Fair value of Asset < $5,000
Finance Lease
Short term Lease
❷
Inception Date
Earlier of the date of lease agreement and the
date of commitment by the parties to terms of
lease.
Commencement date
Date on which the lessor makes an underlying
asset available for use by a lessee.
LEASE STARTS HERE
Paid by Lessee
❸
Lease Term
❽ Manufacturer Dealer Lessor
•
Period covered by an option to extend lease term if the
lessee is reasonably certain to exercise the option. (I.e.
Rental is substantially lower than Fair Market Rental for
extended period).
Periods covered by an option to cancel a lease term if the
lessee is reasonably certain not to exercise the option.
•
❹
How to calculate
Rentals?
Fair Value
Less: Down payment
Add: Initial direct cost paid by lessor – Normal Lessor only
Total Recovery
Less: PV of Residual Value (Guaranteed + Unguaranteed) or BPO
Amount eligible for rental calculation
xxx
(xxx)
xxx
xxx
(xxx)
xxx
1. IDC should be expensed out
2. In case of UGRV PV of UGRV
should be deducted from both:
i.
Sales
ii.
COGS
3. Sales should be recorded at
lower of fair value or Present
value of lease Payments –
(Refer 9)
NIFL to be recorded by this amount
Less BPO if BPO exist “ignore Residual Value”
❺
How to calculate
ROUA
Make Separate Asset and
amortize over lease term
Make Separate Asset
and amortize over
lease term
In case of manufacturer dealer lessor
following things should be remembered:
Non-cancelable period including
•
Paid by Lessor
Manufacturer dealer
Lessor
Normal Lease
Paid by Lessor
Manufacturer dealer
Lessor will expense
out
Paid by Lessee
Include in rentals and
recover from lessee
Capitalize in ROUA
❼ Depreciation Adjustment
Present value of lease rentals
Add: down payment
Add: Initial direct cost paid by lessee
Add: PV of decommissioning cost
Add: BPO (if exist) if lessee is reasonably certain
Less: Incentive by lessor
xxx
xxx
xxx
xxx
xxx
(xxx)
xxx
Depreciation
Lower of
Lessee will start schedule by sum of these “two” called “lease liability”.
Lease term
Useful life
Unless BPO or compulsory transfer then useful life
IFRS 16 – Leases Summary
Prepared by Akash Mukesh Kumar - ACA
❾ What includes lease payments
Lessee:
1. Rentals
2. BPO only if lessee is reasonably
certain to exercise the option.
3. Payment of penalties for
terminating the lease, if it is
reasonably certain that lessee
would terminate the lease.
4. For lessee amount expected to
be paid by lessee under residual
value guarantee.
Lessor:
1. Rentals
2. BPO only if lessee is reasonably
certain to exercise the option.
3. Payment of penalties for
terminating the lease, if it is
reasonably certain that lessee
would terminate the lease.
4. Any residual value guarantees
provided to the lessor by the
lessee, a party related to the
lessee or a third party
unrelated to the lessor that is
financially capable of discharging
the obligations under the
guarantee.
IFRS 16 – Leases Summary
Prepared by Akash Mukesh Kumar - ACA
IFRS 16 – Leases Summary
Prepared by Akash Mukesh Kumar - ACA