5. Leases Flashcards
What is a lease?
A contract that conveys the right of use of an asset for a period of time in exchange for consideration
What is a right of use asset?
The representation on the SFP of the lessee’s right to use an underlying asset for the lease term
What is the accounting treatment of a leased asset at the commencement of the lease?
Dr Right of Use Asset
Cr Lease Liability
What is a lease liability?
Effectively a loan, reflecting the substance of the transaction
What is the lease liability initially measured at?
The present value of the future lease payments
What is included in future lease payments?
Fixed payments, variable payments, residual value guarantees, purchase options, termination penalties likely to be taken
What is the right of us asset initially recognised at?
The lease liability plus any payments previously made, any initial direct costs or any removal or dismantling costs at the end of the lease
What period is a leased asset depreciated at?
The shorter of the lease term and the useful life of the asset (unless reasonable certainty that the asset will be purchased at the end)
What are the 4 amounts relating to leases that are included in the financial statements?
Net carrying amount of the leased asset (NCA), Lease liability due after 1 year (NCL), lease liability due within 1 year (CL), Depreciation of leased PPE and finance costs (P&L)
How can we treat low value leases or those for less than 12 months?
As expenses on the P&L
What does IFRS16 exclude as a low value lease?
Cars
For low value assets, how do we recognise any upfront costs or incentives?
Spread the expense/income across the total life of the lease and accrue/prepay the balance
