last updated: 1/20/2019

IFRS 16 example: accounting for a finance lease by a lessor

Below are calculations accompanying the example available on IFRScommunity.com under direct link below:

https://ifrscommunity.com/knowledge-base/ifrs-16-lessor-accounting/#link-ifrs_16_example_finance_lease_by_lessor_01

On IFRScommunity.com, years are written as 20X1, 20X2 etc., but this changes to 2001, 2002 etc. whenever a spreadsheet
Hence this example starts in 2001, but is NOT outdated at all :)

Calculation of the interest rate implicit in the lease

date amount
1/1/2001 (95,000) fair value of underlying asset
12/31/2001 20,000 lease payment
12/31/2002 20,000 lease payment
12/31/2003 20,000 lease payment
12/31/2004 20,000 lease payment
12/31/2005 20,000 lease payment
12/31/2005 15,000 residual value guarantee (lease payment)
12/31/2005 10,000 unguaranteed residual value

8.7% Interest rate implicit in the lease

Calculation of present values

date payment discount factor present value

1 12/31/2001 20,000 0.9205 18,410
2 12/31/2002 20,000 0.8471 16,943
3 12/31/2003 20,000 0.7796 15,593
4 12/31/2004 20,000 0.7173 14,347
5 12/31/2005 20,000 0.6602 13,203
5 12/31/2005 15,000 0.6602 9,902
5 12/31/2005 10,000 0.6602 6,602 125,000 Gross investment in lease

95,000 Net investment in the lease

Accounting entries at the commencement date

DR CR
95,000 Net investment in the lease (receivable)
90,000 Equipment held for lease
88,398 Revenue
83,398 Cost of goods sold
 -

Schedule for accounting for net investment in the lease

opening interest closing

year (1 Jan) income payment (31 Dec)
2001 95,000 8,203 (20,000) 83,203
2002 83,203 7,205 (20,000) 70,409
2003 70,409 6,097 (20,000) 56,506
2004 56,506 4,907 (20,000) 41,414
2005 41,414 3,586 (20,000) 25,000 <- estimated residual value
30,000
rect link below:

_finance_lease_by_lessor_01

etc. whenever a spreadsheet formula needs a valid format date as an input.

Sales price 95,000

COGS 80,000

Gross investment in lease

ment in the lease

 Receivable 8,203
Interest income 8,203

Cash 20,000
ed residual value Receivable 20,000