Chapter Nine: Leases Flashcards
What is the definition of a lease under IFRS 16?
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.
What is the definition of a lessor?
The entity that provides the right to use an underlying asset in exchange for consideration.
What is the definition of a lessee?
The entity that obtains the right to use an underlying asset in exchange for consideration.
What is a right-of-use asset?
Represents the lessee’s rights to use an underlying asset for the lease term.
How should leases be initially measured?
The lease liability is initially measured at the present value of the leases payments that have not yet been paid.
What should lease payments include?
Fixed payments, amounts expected to be payable under residual value guarantees, options to purchase the asset that are reasonably certain to be exercised, termination penalties, if the lease term reflects the expectation that these will be incurred.
What is a residual value guarantee?
When the lessor is guaranteed that the underlying asset at the end of the lease term will not be worth left than a specified amount..
How is a right-of-use asset initially recognised?
At cost.
What does the initial cost of a right-of-less asset comprise?
The amount of the initial measurement of the of the lease liability.
Lease payments made at or before the commencement date.
Any initial direct costs.
The estimated costs of removing or dismantling the underlying asset as per the conditions of the lease.
How is a short-term lease/low value lease treated?
Use simplified treatment. The lessee can choose to recognise the lease payments in profit or loss on a straight line basis. No lease liability or right-of-use asset would therefore be recognised.
