Leases

Question 1

Per IFRS 16, what is classified as a lease?

Answer 1

• right to control
• identifiable asset
• obtain the economic benefits from it

Question 2

What is not a lease?

Answer 2

lessor cannot substitute asset for their own benefit, there is no identifiable asset

Question 3

What are the exemptions?

Answer 3

• leases < 12 months with no purchase option
• low value and not part of bigger asset (phones, laptops)
• rent expensed to P&L

Question 4

How is a lease liability recognised?

Answer 4

• recognised at future payments discounted to PV
• effective interest rate will increase the initial liability to the actual amount of cash paid

Question 5

How is a right of use asset recognised?

Answer 5

capitalised as part of PPE (ROU asset)
- future payments discounted to PV (lease liability)
- costs directly attributable to leasing asset
- costs to dismantle asset and restore land (provision)
- deduct any payments (lease incentives) from lessor
- depreciate over period company will use asset

Question 6

How is sale and leaseback classified and recognised?

Answer 6

company sells an asset and immediately leases it back
- sells and asset - P&L on disposal
- leases an asset - ROU asset and lease liability

only sold part of the asset because retained a ROU for the asset
- can only recognise profit/loss on disposal for part sold

Question 7

How is the part of the asset which has been retained and the part which has been sold calculated?

Answer 7

PV of future lease payments/FV = part retained

Question 8

How is P/L on disposal calculated?

Answer 8

Proceeds minus CA minus profit/loss

Question 9

How is ROU asset calculated?

Answer 9

CA x % of asset that has been retained