cr. And if there’s a change in payments, then you would need to account for the lease remeasurement. Dear Christian, And now I need to know about how IFRS 16 deals with the sale and lease back sceneries. Dear Silvia, Please remove any invalid characters ('', '+', '|'), links or URLs (e.g, from the 'Your query' field and re-submit. should we charge Depreciation and interest? And, when doing this, you will book the cummulative adjustment in opening retained earnings (depending on which approach you take, whether modified or full). What we do we onerous lease provision recognised at the date of transition under modified retro. The 376 difference, where does that go in the Balance sheet? Well, in my humble opinion, all what you wrote is very true and fine. A few questions below: In your situation, you need to compare the useful life of cars with their economic life (it seems your client rents these cars for most of their useful lives as it’s 5 years), you also need to compare present value of the minimum lease payments with the fair value of the cars, etc. International Financial Reporting Standard (IFRS®) 16 – Leases - was issued in January 2016 and, in comparison to its predecessor International Accounting Standard (IAS®) 17 makes significant changes to the way in which leasing transactions are reported in the financial statements of lessees (although not in the financial statements of lessors). (office lease, equipment lease, vehicle lease, etc). . But I think that is false, moreover after read you article, I am pretty sure that rent office should be recorded under IFRS 16. If you can tell me how you accounted for operating leases previously and how the deferred liability arose, I will show you the entries. Warning: this is NOT exhaustive description of the standard, and I simplify the things a lot for illustration purposes. If the lessee intends to use the option to purchase the asset at the end of the lease term, then you need to depreciate over its economic life. Example: Lease modification – change in consideration only. Is there any guidance regarding discount rates for operating leases under IAS16? (it is kept within the lease liability). Can it be applied the exception for leases with duration less than one year and expense the rent amount instead of bringing them on BS? 3.1 Recording the asset. Thanks for such an elaborate explanation of each and every detail. You discovered that a company, Axia Automobile is not listed in the subsidiary ledger. It’s rather term of lease, credibility of lessee (its credit rating), etc. 2) Since this is an inter-company transaction, there will be no implicit interest rate that has been included in the rental agreement. The proposed amendment complements the educational materials published on 10 April 2020—IFRS 16 and covid-19. Achieve Lease Accounting Compliance . There are just 2 exceptions when you don’t record asset – please look above to the article. Under IFRS 16 , this is a problem that an asset reported in two balance sheet. II. Appreciate your view. S. Thank you very much for your very informative post, especially that you made it very simple to understand. your efforts to simplify IFRS is very appreciated and considered. You find out that you would be able to rent out similar unit in the warehouse next door for CU 9 000 per year without cleaning service, and you would need to pay CU 1 500 per year for its cleaning. This will result in the ROU asset not actually being the same as the lease liability on 1 April 2019 (or 1 July 2019). do I recognize this like a lease incentive and offset from commencement date? Debit Right of use of asset discounted at 99 years? Under Cost model, we have to recognize Depreciation Expense yet as per books of the lessor if the lease was accounted as operating lease, the PPE shall continue to be recognized in its books thus recognizing depreciation expense as well, in that case the PPE will be depreciated under the books of both lessor and lessee accounting. Prepaid rent is rent paid prior to the rental period to which it relates, so the tenant should record on its balance sheet the amount of rent paid that has not yet been used. Real estate leases will be at the heart of many IFRS 16 implementation projects. Housing bubble etc. I have great excel examples exactly on these issues in my IFRS Kit. Hi Swaleha, Accounting is very simple until the morons step in and screw things up b/c they want to justify their existence. Would the present value calculated by discounting future lease payments (i.e.the highly certain cash outflows) at appropriate market interest/ discount rate more superior valuation method than the one under fair value model? Hi Shiva, Do we credit ROUA and Debit Provision for onerous leases? IFRS 16 changes the definition of a lease and provides new guidance on applying the definition. This item simply does not enter into variable lease payments. https://www.cpdbox.comLearn the basic steps in lease accounting under IFRS 16 - both initial and subsequent measurement & recognition are covered. How the elimination work in such cases? Accounting year end is Sep 2019. With IFRS 16, there will no longer be recognition of rent expense in income statements. S. Thanks for the answer. The lessor recognizes the asset in its balance sheet, which is depreciated over its useful life. in some parts of your presentations regarding the application of IFRS 16, you indicate that the lease period is determined only for the non-cancellable period (+possible extension of the contract). Therefore, you need to split the payment of CU 10 000 into lease element and cleaning element based on their relative stand-alone selling prices (i.e. Hello Sylvia, for similar contracts when got separately). What about security deposits? So in this case, you need to assess 5 criteria to classify the lease properly. My company currently uses a warehouse under IAS 17 operating lease where the lessor provides repairs and maintenance. IFRS 16.A, B9 A lease is 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. The rental amount is GHc100,000 per year in advance. Hi Sanela, no, not quite, but non-cancellable period is crucial for determining the lease term. Hi Silvia, IFRS 16 largely retains the definition of a lease in IAS 17 but changes the requirements and guidance on how to apply the definition. Is IFRS16 applicable to that case? FASB retained the concept of straight-line rent expense for operating leases, which is the major difference between ASC 842 and the IASB’s version of the leasing standard, IFRS 16. However, applying those requirements to a potentially large volume of covid-19-related rent concessions could be practically difficult, especially in the light of the many challenges stakeholders face during the pandemic. I will make another Q&A session on this topic. I end up @ IFRSbox whenever in doubt and have to say, no one else does a better job than you in clearing out the hazy parts in the IFRS. The Board will discuss the potential for confusion about the treatment of lease in­cen­tives being caused by an il­lus­tra­tive example ac­com­pa­ny­ing IFRS 16. does this changes will affect the accounting treatment of the lease? why did you include the interest and add it to the carried forward liability? (Deferred rent in year 1 equals rent expense of $115,639 less cash paid of $100,000 for the first year’s rent). We entered into a five year lease on Jan. 1, 2020 with annual rentals payable on Jan. 1 of each year. I am bit confused by your point that is, IFRS16 does not affect Lessors books, however i need to clarify following points: Which is depreciated over its useful life for the lessees on IAS 17, you recalculate your lease liability when. Would be impractical and surely the rental value will likely change at every 5-10 year period are bunch... Illustration is very simple until the morons step in and screw things up b/c they want to how... 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