Unit 3 Flashcards
IFRS Leases
Chapt
IFRS 16
When does a lease occur
It occurs when it allows the other party a controlled use of the asset over a period of time in exchange for a consideration, usually cash.
How do you identify a lease from a service
- Identification of the asset in the contract (no substitute)
- Exclusive right to the economic benefit of use of the asset
- Right of direct use or control of the asset or predetermined in the contract
What is recognized in the books at initial measurement
IFRS 16 :
At the inception of a contract, the asset (ROA) shall be recognized in the lessee’s books with a corresponding lease obligation (Lease Liability)
The initial measurement cost of ROA includes?
PV of initial lease liability
+ Lease payment made on/before commencement day
- Less lease incentives
+ Any lessee initial direct cost
+ PV of dismantling cost
What are the components of lease liability calculations under IFRS
- Fixed lease payment - Yes
- Variable payment - Yes but at index or rate in effect
3 BPO - Yes - Guaranteed residual value - Yes. Use expected payout if lower
- Unguaranteed residual value - No
- Non-lease component cost - Could elect to. ASPE remove
- Termination penalties - Yes If in agreement
* If lessee’s expected payout under the gurantee is less than the guaran
How is ROA subsequently measured
They can be measured at
- Cost
- Revaluation method for PPE or
- Fair value for Investment Property
What are the elements in the cost model?
Original cost
LESS: Acc dep
LESS: Acc impairment loss
Adjust for remeasurement of lease liability
*If ownership is transfered (there’s BPO), depreciate over useful life.
* If NO ownership transfer, depreciate over the shorter of lease term or useful life
Formula for calculating depreciation
- Where title transfers (there is BPO)
(ROU-Residual value) / Useful life - Where title does not ransfer (No BPO)
ROU / (shorter of lease term & useful life)
What are the terms of depreciation of ROA
- If title will transfer at end of lease term (or theres BPO)
- Depreciate over the useful life
- Deduct residual value to calculate depreciation.
- If title will NOT transfer at end of lease term
- Depreciate with lease term
- Do NOT use residual value to calculate depreciation
- For PV of ROU/Lease liability, use expected cash pay out or residual value instead of Guaranteed residual value if theres no BPO
What are the components of lease liability calculations under IFRS
- Fixed lease payment - Yes
- Variable payment - Yes (if based on index or rate in effect)
3 BPO - Yes - Guaranteed residual value - Yes
- Unguaranteed residual value - No
- Non-lease component cost - Could elect to. ASPE remove
- Termination penalties - Yes (if stated in the terms)
- If lessee’s expected payout and guaranteed residual are mentioned, use the expected payout. This is not BPO.
Content of a lease PV calculation IFRS
RATE- Implicit rate if known
NPER - No of periods
PMT - Fixed pymt + variable (@index) + non-lease component(if elected)
FV - BPO or guaranteed residual, Termination penalties (in agreement)
TYPE - 1 BGN , 2 END
*Where there is both BPO and guaranteed residual, use BPO
Derecognition - when asset is returned
- When there is no residual value
Final pymnt is o
Dr Accum dep
Cr ROU - When theres residual value
Amount to pay = Residual value - FV at end point
Dr Lease liability
Cr Gain/Loss on derecogntion
Cr Cash
Derecogntion - title transfer - no BPO
No gain or loss but transfer at NBV of ROU
Dr Asset
Dr Accum dep
Cr ROU
Derecogntion - Title transfer - theres BPO & is paid
Dr lease liability
Cr cash
Dr Asset
Dr Accum dep
Cr ROU