Lease Accounting (ValixPeraltaValix) IFRS 16

Lease – a contract or part of a contract that conveys the right to use the underlying
asset for a period of time in exchange for consideration

Right to Control the Use of an Asset

a. Obtain substantially all of the economic benefits from the use of the identified
asset.
b. Direct use of the identified asset

Lessee – umuupa

Lessor – nagpapaupa

Commencement Date – a lessee shall recognize a right to use asset and a lease
liability

Lease Liability =PV of Annual Rental (PV of Ordinary Annuity of 1 x Annual Rental)
+PV of Residual Value Guarantee (PV of 1 x Residual Value)

Inclusion in Lease Liability

a. Fixed and Variable Lease Payments

b. Purchase Option that is reasonably certain to be exercised
c. Residual Value Guarantee of the Lessee
d. Termination Penalty if the lease term reflects the exercise of a termination
option

Right of Use Asset = PV of Lease Payments (initial lease liability)

+ Payment to Lessor to Obtain the Lease
+ Initial Direct Cost
+ Cost of Dismantling, removing, restoring
- Lease Incentives

IFRS 16 par. 32 lessee depreciation method the right of use asset over:

a. Useful Life : the lease transfer ownership of the underlying asset to the
lessee at the end of lease term
: the lessee is reasonably certain to exercise the purchase option
b. Shorter between the useful life of the asset and the lease term

Depreciable Amount = ROUA – Residual Value Guarantee

Residual Value Guarantee – is the guarantee made to the lessor by a party

unrelated to the lessor that the value of an underlying of the lease term will be at
least a specified amount.

Unguaranteed Residual Value – not assured or assured or is guaranteed solely by a

party related to the lessor.
Disclosures – Lessee

Expenses incurred, income from subleasing right of use assets, total cash outflow,
addition to right of use assets, CA of ROUA, short term leases

Operating Lease – Lessor

Lessor Accounting – business as usual

Operating Lease – lease does not transfer substantially all the risk and rewards

Finance Lease - lease does transfer substantially all the risk and rewards

The classification depends on substance of the transaction

Rent income – periodic rental received

Direct Financing Lease – Lessor

2 types of finance lease

a. Direct financing lease – recognizes only interest income

b. Sales type lease – recognizes interest income and gross profit

Accounting Considerations

a. Gross investment – this is equal to the gross rentals for the entire lease term