IFRS 16 LEASES

-
 IFRs-#
Old Structure (IAS -
17 )

:÷ ÷ ÷ ¥:÷ ÷f÷: : ÷
Long Leaseffinance Lease Short-term Lease ) Operating Lease
Its
→ like
you
have
bought → Its like you have taken an Asset

Asset on Loan .
on Rent

:i:
.

Maintenance , Responsibility
of Lessee

I
 i
No Asset

.am/ai: : :. .
→

Machine
No
FLO xxx
→
Obligation .

Just treat complete Rental Treated

::÷÷÷÷÷:÷÷÷
"
i
•

a Repayment of loan .

Cash
-

xxx
FLO xxx - _

Int Exp xxx

Cash xxx
÷
 #
Lessee Books
-
NowNewIFP#
↳
AHLeaseswillbetreatedasfinancele.ae#
↳ Except
1 . Leases with Lease term less than 12 months .

2- Low Value Assets .

Initiate
Right of Use xxx

Lease Obligation xxx

↳ Recorded at Present Value of

Futurecashflowse
↳ Minimum Lease Payments
(MLP )
#
Question 't :

Inception of Lease 1st January 2006

Lease term =3 years

Interest rate implicit in the lease = 107 .

Rental =
10,0001 annum in arrears

Present Value of lease Rental -

. 24870

Required :

't
FIS extract for the year ended 31 Dec 2006 ?

24870 17357 9093

#
31 Decxb 31 Deck
1st Jan XG

Lease Amortization Schedule

-

R O U 24780

f.isi:/: : :/l: : 3lDecX8

-
-
:#
Date Rentals
Fingnnaerge Doebeiigation Bal Obligation
lease obligation 24780
-

-
I Janxb 24870

: c: :O:O :
10000 909 9091
Q2
=

R.O.tl/2885-
LeaseAmortizationscheduk.to

T.is#m.p::::::f::fii:::j:i ::::T
12885 "

5000 713
4287 4628

t
currtent Noncurrent
liability

( f
lntexp 1030

Dep Exp 4295

-
Iffirstpaymentlvow
↳ must be treated as Pure Decrease in Loan

Lease Obligation xxx

Cash xxx

reception of lease 1st January

Lease term
2006=3 years
Interest rate implicit in the Lease = 101
Rental =
200001annum in advance

Annuity Factor for Year 2 = 1736

Required :

f- IS extract for the year ended 3 1st Dec 2006 ?

 -20000 20000 20000

PV of Lease Rentals =
200001-(20000×1736)
PV of lease Rentals =
54,720
Lease Amortization Schedule
I Jan XG

I.to/..f.....T::i::
:#
- Date Rentals
Fingnnaerge Doebciignation Bal Obligation

:÷÷÷÷÷ :*
L .
O 20000

Cash 20000
⑧

34720 34720 18192

18192 .

IF ,

I Janxb ×G 31 Deen

Int Exp 3472

Aecruedluterest3U
 Rio U 54720
Dep =

PGL Extract ME
-

-
31 Decks
3 yrs
-

3472=184201
Int Exp
18240
Dep Exp
annum
-

21712
-

SOFPAsA3lDe
NCA
← R -
o -
U (54720-18240) 36480

Noncurrentliability
18192
Lease
Obligation
Currentliability
Lease
Obligation 16528
Accrued Int 3472
Q4
A

PV of Rentals =
6000+(6000×1.833)
" " = 16998

LeaseAmortizationscheduk.IR
-

f : / /
.no/i.o: CashGo0 dep- 16z9 yr8s=56 G/an um
D#tMFiggaBdbigtion

I s
.
U O .
16998

.::o :: .. ..
 Period Period
If Accounting and Rental Payment is
different
Then first make L A. S Period and then do
→
using Payment
.

Period
Apportionment according to Afc .

IF PAYMENT PERIOD & ACCOUNTING PERIOD IS DIFFERENT

#

①5 Period 1st October

Accounting
"
=
=
to 30 September
Inception of Lease = 1st January 2002

Rentals =
120001annum in advance

Lease term = 4
years
Life of Asset 10
=
years
Interest Rate = 101 .
.
Depreciation Policy =

Annuity factor for year 3 2.487 Monthly Basis -

Required
FIS extract for the year ended 30M Sep 2002 ?
12000 12000 12000 12000

to: #3 4

PV of Rental = 12000+(12000×2.487)
= 41844

lJanT
Lease Amortization Schedule
R :#

I :/ I ) )
O U 41884
DtMFggaBIbigtion
. -

10418842

i÷:÷oo :÷ .. .. ..
:::
 2,9884 79884 -20828 20828
# I
.
.

Istoeto , lstjanxz Int 30%40×2 lJanx3 3osepX3

2238
-
gut exp
-

Int Exp 2238

Accrued Int 2238

←
1-
I Jan X2 30 Sep X2
IOAN
SoFPasAT3oSeP#
R -4=418442 Asset
deep O
-

(41844-7846)
33998--10461×91,2=7846
4 yrs R.o.lt

Noncuwentliability
L O
-
20828
PqLY/E30Sep Current liability

( |
Int Exp 2238 -

L -
o 9016
Dep Exp 7-846 Accrued int 2238

-10,084
0¥ Accounting Period = 1st January to 31
"
December

Inception of Lease = 1st July 2007

Rentals =
7000 ( annum in advance

Lease term = 4
years
Life of Asset = 6 years
Interest Rate = 101 .
.
Depreciation Policy =

Annuity factor for year 3 2.487 Monthly Basis -

Required
FIS extract for the year ended 3 1st Dec 20077 @
Ifleasetermandlifeisdiffereut.lt
the Asset
transferred
is Expected to be to Lessee at the end
of
lease
,
then Always depreciate it over the
life of Asset .

① If Asset is not Expected to be

transferred to Lessee at the End of Lease
term .
Then depreciate it on

LOWER
-
OF :

Lease term
y
Life of Asset
2)

Initial Direct Cost By Lessee in Lease must be

capitalized
R .
O U
.
xxx

cash xxx

↳#.M at ching Principle

*
Initialmeasurementofkight-of-use.tt#
At commencement date the
right of use asset is measured at cost .

This comprises :

y The amount of the initial measurement of the Lease liability

2) Any lease payment made before the commencement date less any ,
lease incentives

received -

3) Any initial direct costs incurred by the lessee .

4) Any costs which the lessee will incur for dismantling and removing the underlying
asset or
restoring the site at the end of the lease term .

R .
O U
.
xxx

Obligation
 Sale & Lease Back
-#
If the Sale meets the Criteria of If the Sale does not meet the criteria

IFRS 15
-

, Performance Obligation of IFRS -

15
,
Performance Obligation
satisfied Satisfied ,
.

Then : Then :
= e

②① Recognize Asset
① Depiecognize Asset Dont De -

② Book gainllosson disposal Dont Book

any gain ) loss on disposals .

upto Rights Transferred

the
③ Just Book the proceeds as a
③ Book Rio U upto the Rights
-

Non Current Loan

,

Retained (As we are lessee Now)

.

STEPS :
I

① IFRS 15 Criteria R -
O U
-
= CV of Asset xP.VofMr
② PV of M.L. P (Retained) Fair Value of
Asset
⑦ Right of Use
-
(Retained )
⑨ Entry .
f- Asset is Soldat Fair Value
'
-

Fair Value of Asset = 700000

Company sold asset for 700000in lease it back for 4 years at annual rental of
80000 per annum in arrears

Remaining life of asset = 10 years

500000
carrying value of asset at the date of disposal =

Interest Rate
10%1 = annum -

p.V
Required : =

Journal Entry ? '

Irl 80000×1 = 72,720
I l -

Bank 700000 4 Yr2 80000×1 66,080

→
yrdep (l -

1)
2
=

R -

O -

U 181,086
-

Yr3 80000×1
3
= 60,080
( 1. 1)
PPE, E 500000
Yr4 80000×1 = 54,640
Lease Obligation 253520 ( lily -

PV of MLP =
253520
Gain on
disposal 127566 (B) =

(PGL )
I
Q.SI CV of Asset at the date of sale
F. V of Asset 500
300
=
=

Co sold the asset for its fair value and leased it back for 5 years
.
.

Remaining life of Asset 20 years =

P V of lease
.

150 Obligation =

Required :

Journal Entry ?

R .
o -
U = 300 X 151
( Retained, 500

= 90

Bank 500

R .
o .

U 90

PPG E 300

to 150

gain
on
disposal 140 ( B)
( P GL )
*
#
If Sold for More than Fair Value

↳ Then Excess of S -

P over Fair Value will be treated As a loan .

And Obviously this Loan Repayment is Included in future lease Rentals -

This Extra Loan Element has nothing to do with R.o.U.R.o.tl will still be

basal on Present Value of Pure lease Payments

Example.nsalellease.ba# Pvottotal Obligation -_ 526,797

less Extra loan

(50,000)
Prof Rerelease Obligation 476,79T
=

R.o.LI

60 0 0×476797 56,0 0=381,437

"

( Retained ,

$
120,000/1.045 114,833 13=800,000
1704
120,000/1.0452 109,888 381,437
600,000
pPgE
120,000/1.045 105,155
3 .

Obligation 526,797
120,000/1.0454
5
100,627 Gainopngdjsposd 54,640

120,000/1.045 96,294
-

526,797 → Prof Total Obligation

#
 →

Ifsoldforlessthanfairvaluels
Then the Excess of Fair Value over S P will betreated
. As a Prepayment .

finalformulaforR.O.ULRetainedJR.co
-
U = C V of Asset at
-

the date of
×
P V of
.
Total obligation -
Additional
Loan
t prepayments
(Retained) #

disposal F. V of Asset

Conditions
=
for IFRS 16 ( For . leasing)
① Specified Asset ( Identified )
② R O U Transferred to lessee
. -
.

③ In Exchange of Consideration .
CBE style OTQ bank -

leasing ( 176 -
180 )
 Operatinglease
→ No Asset

→ No lease obligation
→ Just treat complete Rental As an Expense
→ Accrued 01 Prepaid may arise .

Rent Exp xxx

I #
cash xxx

Concept of Rent Free Period

-

• If it is written that there is a Rent Free Period in the lease .

Then that period is
not Rent Free i

Rent Free 15000 15000

#
¥ O l 2 3

Rent Exp 10,000 Rent Exp 10000 Rent Exp 10000

Cash 10,000 Accrued 5000 Accrued 5000

Cash 15000 Cash 15000

Per yr Rent
exp = Totalrentals
lease term
=

300301 = $10,0001 annum

 Exam Question LOW VALUE ASSET
-
+

M J J A S O N D F M A
J
#
I Jan 16 31 Dec 2006

starting of
lease .

First 6 months are Rent Free

Rent is Paid @ $100001 month

¥Ty Accountant deliberately wishes to Record Finance lease as

Operating lease ?

Ahs is To Reduce Gearing

improve ROLE
iy To
81 Jan Badger
'

on 20×4

pic

82 . Owl leases

pic

property
'

83 .
0h17am 20×6 ,
sideshow sold a

pic
 19300
23000
#
1st April 31 Marx 2

R -
O -
U 25000 Leo 2000

L - O 25000 Cash 2000

↳ Dep
-

0.4=250005
A.

yrs
=
50001 annum

L.A.SI#-dst.cDeobBdOb.
'¥mA!! !!
) 1 2 3 0 / 3 70 / 1 9 3 0
23000

z sooo

zlstpfarxz 6000 1930 4070 15230

SLIP (3ft March K2 )

R -
O U
-

(25000-5000)=5/20000