IFRS 16

Question 1

General notes: IFRS 16

Answer 1

• Given FV (it is PV), URV (this will be the FV)
• ECL is on the PV
• Protective rights do not prevent customer from having the right to direct the use of the asset
• The implicit interest rate is a discount derived from financing agreement with lessor
• VAT suspense account is entity specific and not derived from financing agreement therefore the incremental BR (Entity specific) must be used
• ROUA can also be converted into credit risk through the net investment
• Discount rate is used for head lease to measure discount rate in sublease unless you have an implicit rate
• If given different payments, do NPV calc
• If you have two BR find PV for the both of them and what is the difference?
• At acquisition lease liability and ROUA initially measured at PV of remaining lease payments as though new lease
• Supplier controls how and what no lease
• If supplier has substantive substitution rights no control
• Practical expedient only for lessee not lessor
• A lease modification is change in scope and change in terms and conditions not estimates so account for it as a new lease
• variable lease payments: Dr: Lease expense Cr Bank

Lease Term:

• Add non cancellable period and reasonably certain option to renew
• Include the fact that lessor has cancellation right
• Include rent free period

Question 2

Example: sale (1 000 000), cost (750 000), call option repurchase (1 100 000) (IFRS 16)

Answer 2

LESSOR:
Dr Bank_1m
  Cr Financial liability_1m
sale vs repurchase:
Dr Finance expense 100k
  Cr Finance liability 100k
Dr Financial liability 1,1m
  Cr Bank  1.1m

LESSEE:
Dr Financial asset 1m
  Cr Bank                    1m
Dr Financial Asset 100k
  Cr Finance income 100k
Dr Bank 1.1m
  Cr Financial asset 1.1m

Question 3

Repurchase at amount < SP

Sale = 1m, Cost =750k, Repurchase =900k, 
i= 9.5%

Answer 3

Dr Bank 1m
Cr Financial liability 821 918
Cr Prepaid lease pmt 178 082
(BGN, p/y=1, FV=900K,PV=1m,i=9.5%.n=1)

Dr Finance expense
Cr Financial liability
(On 821 918)

Dr Prepaid lease pmt 178 082
Cr Operating lease income 178 082

Dr Financial liability 900k
Cr Bank 900k

Question 4

Sale = 1m, Repurchase = 900k, mv of repurchase= 750k

Answer 4

If repurchase 900k <1m (SP)> Repurchase mv =750k

Contract is a lease and accounted for as a lease (Forward/options)

Question 5

ROUA

Answer 5

• Adjust it to reflect favorable terms of the lease
• Market pmt - Initial PMT = new PMT then do TVM
• FV ROUA = adjusted PMT + PV

Initial recognition:
= Lease liability+ initial direct cost+ lease pmts + dismantling cost - lease incentive

Subsequent recognition:
Cost model: Cost less accumulated depr- impairment+ re-measurement lease liability

Question 6

Short term lease or low value lease

Answer 6

Recognition
Dr Lease expense
Cr Bank

Dr Prepaid expense
Cr Lease accrual

Question 7

ECLA

Answer 7

C/B * probably of default * loss given default

DR Impairment
CR ECLA

Question 8

IFRS 3: IFRS 16

Answer 8

1. Determine the CA of liability to lessee (original pmts +rate)
2. Determine CA of liability at acquisition using new rate
   - PV of remaining lease pmts at new rate (old liability - new liability)
   - Lease liability = ROUA
   - ROUA is adjusted for market conditions or terms
3. Determine new payments + conditions
4. PV new pmts with new rate

Question 9

Deferred TAX

Answer 9

ROUA: NPV+ PMT - DEPRECIATION

Lease Liability: NPV + INTERETST - PMT