Leases

Question 1

When can leases be recognized?

Answer 1

When leases are defined for more than a year and above a certain materiality

–> IFRS wanzs the lessee to treat it as its own asset

Recognize as PPE “right of use” asset

Along with corresponding liability at PV of future lease payments

Question 2

IFRS Lease Accounting

Answer 2

Only finance lease accounting

Removed operating lease accounting

Question 3

What is operating lease accounting?

Answer 3

Asset recognized on B/S as right of use asset

Corresponding lease liability has both current and long term portion

no ownership transfer

I/S monthly lease expenses (on straight line basis)

CF/S include lease payments in CFO

–> expense is straight-lined over the term of the lease, regardless of rent escalations, etc (also accrual accounting).

Question 4

What is financial lease accounting? IFRS 16

Answer 4

Also recognized as ROU asset on B/S

I/S interest and depreciation expense are broken out

Ownership transfer at end of lease

Question 5

How to calculate initial lease payment?

Answer 5

The lease liability and ROU asset is the
present value of future lease payments

– NOT simply the sum of all future lease payments

Simply calc PV and sum up

Question 6

Operating lease expenses

Answer 6

Interest expense

Depreciation expense

Not broken out in I/S for operating leases