IFRS 16: Leases

Question 1

What is a lease and what is inception and commencement of lease date?

Answer 1

Lease: Contract that conveys the right to use an asset for a period in exchange for consideration.
Inception: Earliest date where parties agree to terms & conditions.
Commencement: When asset is available for use.

Question 2

Distinguish between lessors and lessees

Answer 2

Lessor: Entity supplies asset for use and receives consideration.
Lessee: Entity acquires asset for use and pays consideration.

Question 3

Define “Right of use asset” and how it and the lease liability are measured at commencement date?

Answer 3

Definition: Asset that lessee has the right to use for a lease term.
ROU Measurement: Initial lease liability + future lease payments + direct costs + dismantling/removing/restoration costs.
Lease liability: Measured at present value of lease payments that fall after commencement date.

Question 4

When is a lesse not required to recognise a right of use asset and lease liability at commencement date?

Answer 4

When lease is less than 12 months or of a low value asset, treat it as an expense.