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AASB 16 Check: Are outgoings recognised on balance

sheet?
26 July 2019
A lease of property often includes payment for the right to use the
property plus other amounts such as reimbursement of maintenance,
rates and other costs, otherwise known as 'outgoings'. This issue of
AASB 16 Check responds to the common questions we are hearing from
lessees on how payments for outgoings are treated under AASB 16
Leases.

Scenario
Let’s pose a scenario that Company Y enters into a lease of an office
building for 5 years. It pays a fixed amount of $20,000 per month for the
right to use the building. The amount also includes maintenance and
waste disposal services, water usage, and a reimbursement for
insurance premiums and property taxes paid by the landlord*. Company
Y chooses to capitalise only payments for the right to use the building**.
Question 1: Should the Company include the entire fixed amount as
the lease payments?
Interpretive response: No, Company Y allocates the fixed amount to the
different types of benefits it receives from the landlord.
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The Company has a lease, that is, it receives a right to use the building
(lease component). It also receives:
maintenance and waste disposal services (non-lease
component); and
a service for water usage (non-lease component).
The Company does not receive a benefit from the insurance premiums
and property taxes. Accordingly, Company Y should split the monthly
payments between lease payments (to be included in the lease liability)
and an expense for the non-lease component services received.
Question 2: How are lease payments to be included in the lease
liability determined?
Interpretive response: Company Y allocates the total payments of
$20,000 per month between the benefits it receives (lease and non-lease
components) from the landlord.
The allocation between the lease and services is based on their
respective standalone selling prices as illustrated below:

Component Stand-alone Selling price Allocation of

prices ratio consideration

Building lease $22,000 88 percent $17,600¹

Maintenance, $3,000 12 percent $2,400²

waste disposal
and water***

Total $25,000 $20,000

¹ ($25,000 x 88 percent)
² ($25,000 x 12 percent)
The Company includes $17,600 in its lease liability, and $2,400 is
recognised as an operating expense in the month that it is incurred.

In technical speak
* This is based on the assumption that the property owner is obligated to
pay the property taxes. If the occupier (lessee) has the statutory
obligation to pay the property tax, then that tax is accounted for under
Interpretation 21 Levies.
** When an arrangement contains lease and service components, a
lessee has a choice to either: /
 Combine the lease and service components and account for them
together as a lease; or
Separately account for the lease and service components.
This choice is made by class of underlying asset.
*** Allocation of the consideration in the contract is on the basis of the
relative stand-alone price of the lease component and the aggregate
stand-alone price of the non-lease components.

If you would like to discuss the implementation of the new standard for
your organisation, please contact us.

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