Accounting for Leases

(Lessor)
Lecture 7

1
Accounting for Leases by Lessors
For the time being, the IASB has retained the ‘old’ leasing system for accounting
for leases by lessors

 From the perspective of the lessor, leases shall still be classified as either finance
leases or operating leases.

 A finance lease is a lease that transfers—from the lessor to the lessee—

substantially all of the risks and rewards incidental to ownership of an underlying
asset.

 An operating lease is a lease that does not transfer substantially all of the risks
and rewards to ownership of an underlying asset.

 Short-term leases would typically be considered as operating leases.

 For a finance lease—a lease receivable would be recognised.

 For an operating lease—no lease receivable would be recognised.

2
Accounting for Finance Leases by
Lessors Lessor

Finance Operating
Lease Lease

(IFRS 16/
Lessor needs to Right to use MFRS 16) Lease
de-recognise the asset Payment
leased asset (if it (RM)
had previously
recognised it) &
recognise as
receivable
(debtor).
Lessee
3
Accounting for Finance Leases by
Lessors
Lessor : the individual/firm providing the asset and
receiving a payment at established dates
Initial measurement It’s a receivable for the
What constitutes a lessor, which replaces
liability for the the underlying asset
lessee which has been leased
to the lessee
Subsequent measurement

What constitutes It’s interest

interest expense for revenue for the
the Lessee Lessor

4
Accounting for Operating Leases by
Lessors
Lessor

Finance Operating
Lease Lease

(IFRS 16/
Right to use MFRS 16) Lease Lessor needs to
asset Payment recognise the
(RM) expenses
related to the
asset as well as
the lease income
for the year.

Lessee
5
Accounting for Operating Leases by
Lessors Operating
Lease
 Lessor is the beneficial and legal owner of the assets in an operating
lease arrangement.

 Lessor shall continue to subsequently measure the asset that has

been leased in accordance with the nature of the asset just like any
other non-current asset.

 Costs incurred in earning the lease income are recognised as an

expense (includes depreciation or amortization).

 Any direct cost, that is incurred by lessor in arranging for the lease, is
to be added to the CA of the leased asset and recognised as an
expense over the lease term.

6
Accounting for Operating Leases by
Lessors Operating
Lease

 Recognition is to be made on the lease receipts. Lease income shall

be recognised as income on a straight-line basis over the lease
term.

 As recognition is to be made when the lease payment is receivable,

appropriate adjustments are made if the accounting period ends
between the cash receipt dates.