LEASES: A

C O M PA R AT I V E A N A LY S I S
OF IAS 17
AND IFRS 16
TOPIC
OUTLINE
LATEST PROMULGATION OF IASB ON
IAS 17

EXEMPTION ON LEASE

DEFINITION

RECOGNITION OF LEASE (LESSEE

PERSPECTIVE)

LESSOR ACCOUNTING

ILLUSTRATION
 LEASES: A COMPARATIVE ANALYSIS OF IAS 17
LATEST PROMULGATION OF IASB
ON IAS 17
The promulgation on January 1,
2019, stated that “IAS 17 will be
superseded by IFRS 16”.

AND IFRS 16
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 LEASES: A COMPARATIVE ANALYSIS OF IAS 17
EXEMPTION ON LEASE
• Leases to explore for or use minerals, oil, natural
gas and similar non-regenerative resources; 
• Leases of biological assets held by a lessee (IAS 41
); 
• Service concession arrangements IFRIC 12; 
• Licenses of intellectual property granted by a lessor
(IFRS 15); and 
• Rights held by a lessee under licensing agreements

AND IFRS 16
for items such as films, videos, plays, manuscripts,
patents, and copyrights within the scope of IAS 38.

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DEFINITION

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

OF LEASE IN
IAS 17 AND
IFRS 16
IAS 17:
• A lease is classified as a finance lease if it transfers
substantially all the risks and rewards incident to
ownership. All other leases are classified as
operating leases. Classification is made at the
inception of the lease. [IAS 17.4]

AND IFRS 16
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DEFINITION Situations that would normally lead to a lease being

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

OF LEASE IN classified as a finance lease include the following:
IAS 17 AND IAS 17.10
• The lease transfers ownership of the asset to the
IFRS 16 lessee by the end of the lease term
• The lessee has the option to purchase the asset at a
price which is expected to be sufficiently lower than
fair value at the date the option becomes exercisable
that, at the inception of the lease, it is reasonably
certain that the option will be exercised
• The lease term is for the major part of the economic

AND IFRS 16
life of the asset, even if title is not transferred

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DEFINITION • At the inception of the lease, the present value of the

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

OF LEASE IN minimum lease payments amounts to at least
IAS 17 AND substantially all of the fair value of the leased asset
• The lease assets are of a specialised nature such that
IFRS 16 only the lessee can use them without major
modifications being made
IAS 17.11
• if the lessee is entitled to cancel the lease, the lessor's
losses associated with the cancellation are borne by the
lessee
• gains or losses from fluctuations in the fair value of

AND IFRS 16
the residual fall to the lessee (for example, by means
of a rebate of lease payments)

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DEFINITION

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

OF LEASE IN
IAS 17 AND
IFRS 16
• the lessee has the ability to continue to lease for a
secondary period at a rent that is substantially lower
than market rent

AND IFRS 16
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DEFINITION

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

IFRIC 4
OF LEASE IN
IAS 17 AND The Interpretation specifies that an arrangement that meets the
IFRS 16 following criteria is, or contains, a lease that should be accounted
for in accordance with IAS 17 Leases:

• Fulfilment of the arrangement depends upon a specific asset.

• The arrangement conveys a right to control the use of the

underlying asset.

AND IFRS 16
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DEFINITION

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

OF LEASE IN
IFRS 16:
IAS 17 AND A contract is, or contains, a lease if it conveys the right
IFRS 16 to control the use of an identified asset for a period of
time in exchange for consideration. [IFRS 16:9]

Control is conveyed where the customer has both the

right to direct the identified asset’s use and to obtain
substantially all the economic benefits from that use.
[IFRS 16:B9]

AND IFRS 16
10
DEFINITION

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

OF LEASE IN
IAS 17 AND
Instead of applying the recognition requirements of
IFRS 16 IFRS 16 described below, a lessee may elect to
account for lease payments as an expense on a
straight-line basis over the lease term or another
systematic basis for the following two types of leases:
• Short-term lease
• Low-value lease

AND IFRS 16
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DEFINITION

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

OF LEASE IN Difference:
IAS 17 AND
• IAS 17 = risk and rewards, IFRS 16 = Right of use
IFRS 16
asset
• In IAS 17, leases if separated into finance and
operating leases, while IFRS 16, all leases is
considered as finance leases, but the entity may elect
to use operating lease model if the asset leased is
qualified.
• IFRS 16 considered the separation of lease and non-

AND IFRS 16
lease components.

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DEFINITION

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

OF LEASE IN Why the difference?
IAS 17 AND
Another change in lease classification affects what
IFRS 16
actually constitutes a lease agreement as IFRS 16
contains a new lease definition. The actual wording of
the definition in IFRS 16 does not change too much
from the IAS 17 one. However, there is a greater
emphasis and weight surrounding how a lease differs
from a service. This is aimed at improving the
comparability of financial statements, capturing useful

AND IFRS 16
material information on leases rather than additional
components. (Hendrie, 2016)

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 IAS 17:
RECOGNITION The following principles should be applied in the

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

OF LEASE: financial statements of lessees:
• At the commencement of the lease term, finance
LESSEE leases should be recorded as an asset and a liability at
PERSPECTIVE the lower of the fair value of the asset and the present
value of the minimum lease payments (discounted at
the interest rate implicit in the lease, if practicable, or
else at the entity's incremental borrowing rate) [IAS
17.20]

• Finance lease payments should be apportioned

AND IFRS 16
between the finance charge and the reduction of the
outstanding liability (the finance charge to be allocated
so as to produce a constant periodic rate of interest on
the remaining balance of the liability) [IAS 17.25]

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RECOGNITION

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

OF LEASE:
LESSEE
PERSPECTIVE
Incentives for the agreement of a new or renewed
operating lease should be recognised by the lessee as a
reduction of the rental expense over the lease term,
irrespective of the incentive's nature or form, or the
timing of payments.

AND IFRS 16
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RECOGNITION IFRS 16:

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

Upon lease commencement, a lessee recognizes a
OF LEASE: right-of-use asset and a lease liability. [IFRS 16:22]
LESSEE
PERSPECTIVE The right-of-use asset is initially measured at the
amount of the lease liability plus any initial direct
costs incurred by the lessee. Adjustments may also be
required for lease incentives, payments at or prior to
commencement, and restoration obligations or similar.
[IFRS 16:24]

AND IFRS 16
• Under the cost model a right-of-use asset is measured
at cost less accumulated depreciation and accumulated
impairment. [IFRS 16:30(a)]

16
RECOGNITION • Variable lease payments that depend on an index or a

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

rate are included in the initial measurement of the
OF LEASE: lease liability and are initially measured using the
LESSEE index or rate as at the commencement date. Amounts
PERSPECTIVE expected to be payable by the lessee under residual
value guarantees are also included. [IFRS 16:27(b),(c)]

• Variable lease payments that are not included in the

measurement of the lease liability are recognized in
profit or loss in the period in which the event or
condition that triggers payment occurs unless the costs

AND IFRS 16
are included in the carrying amount of another asset
under another Standard. [IFRS 16:38(b)

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RECOGNITION The lease liability is subsequently remeasured to

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

reflect changes in: [IFRS 16:36]
OF LEASE:
LESSEE • The lease term (using a revised discount rate);
PERSPECTIVE • The assessment of a purchase option (using a revised
discount rate);
• The amounts expected to be payable under residual
value guarantees (using an unchanged discount rate);
or
• Future lease payments resulting from a change in an
index or a rate used to determine those payments

AND IFRS 16
(using an unchanged discount rate).
16:36(c)]

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RECOGNITION

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

OF LEASE:
LESSEE The remeasurements are treated as adjustments to the
PERSPECTIVE right-of-use asset. [IFRS 16:39]

Lease modifications may also prompt remeasurement

of the lease liability unless they are to be treated as
separate leases. [IFRS 16:36(c)]

AND IFRS 16
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RECOGNITION

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

OF LEASE: Difference:
LESSEE • Treatment to initial direct cost by the lessee, lessor
PERSPECTIVE incentives, and option to purchase

• Measurements (IAS 17:

Lease Asset and Liab = LFVAPVMLP;
IFRS 16:
Lease Liability at PV (LL) = Lease Payments + option
to purchase or guaranteed residual value; and

AND IFRS 16
ROA = LL + IDC FaceV – LI + RC at PV)

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RECOGNITION

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

OF LEASE: Why the difference?
LESSEE • Improved comparability and transparency on balance
sheet.
PERSPECTIVE
• As operating leases have not needed to appear on
balance sheet, accountants have had a less challenging
interaction with them.

• The definitions of the leased asset and liability

measures need to be specifically defined to ensure a

AND IFRS 16
consistent measurement approach.

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 Lessor accounting remains largely unchanged under
LESSOR

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

IFRS 16. However, with operating leases losing their
ACCOUNTING: off balance sheet accounting treatment, the types of
agreements lessees favour may shift, as companies
focus more on the operational benefits of leasing over
accounting ones. Lessors typically use operating leases
as a tool to price more competitively.

IAS 17 – Focus on lease type from an operational

perspective. Many lessees used operating leases to
avoid balance sheet recognition. Others prefer the

AND IFRS 16
reduced risk and reward, as well as the competitive
pricing that operating leases offer.

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LESSOR IFRS 16 – Lease type has a lower impact from an

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

accounting standpoint, however, a greater focus is
ACCOUNTING: placed upon on the deal types that can be negotiated.

Why the difference?

Although lease accounting is removing the operating

lease and finance lease classification for lessees, lessor
accounting remains largely unchanged and the
operational differences between operating leases and
finance leases remain. Businesses may look for more

AND IFRS 16
inventive ways to lease to continue to get the most out
of their assets.

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 ILLUSTRATION

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

At the beginning of the year, Coco Company leased a building from a lessor with the
following present information:

Annual rental payable at the end of each year P1,000,000

Initial direct cost paid 400,000
Lease incentives received 100,000
Leasehold improvements 200,000
Purchase option that is reasonably certain to be exercised 500,000
Lease terms 5 years
Useful life of the building 8 years

AND IFRS 16
Implicit interest rate 10%
PV of ordinary annuity of 1 for 5 periods 3.79
Present value of 1 for 5 periods at 10% 0.62

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 ILLUSTRATION

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

Initial measurement:

IAS 17:
Finance Lease Asset and Finance Lease Liability = P1,000,000*3.79 = P3,790,000

IFRS 16:
Lease Liability = (P1,000,000*3.79) + (P500,000*0.62) = P4,100,000
Right of Use Asset = LL + IDC – LI = P4,100,000 + 400,000 – 100,000 = P4,400,000

AND IFRS 16
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 ILLUSTRATION

LEASES: A COMPARATIVE ANALYSIS OF IAS 17

IAS 17   IFRS 16
FLA P3,790,000     ROA P4,400,000  
FLL   P3,790,000   Cash   P300,000
        LL   P4,100,000
IDC 300,000          
Cash   300,000        
             
Succeeding Year   Succeeding Year
Interest P379,000     Interest Exp. P410,000  
Exp.
FLL P621,000     LL P590,000  
Cash   P1,000,000   Cash   P1,000,000

AND IFRS 16
             
Depreciatio P473,750     Depreciation P550,000  
n Exp. Exp.
Accu.   P473,750   Accu   P550,000
Dept. Dept.

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 THANK YOU

27 PRESENTATION TITLE