Lesson 1 of 0
In Progress
1.5 Leases (Exclude Sale and Leaseback and dealers in leasing assets)
- Leases -IFRS 16
- Types of Leases:
- Operating Lease: A lease where the lessor retains significant risks and rewards of ownership. It is treated as an off-balance sheet item under the old accounting standards and results in straight-line lease expense recognition in the income statement.
- Finance Lease: A lease that transfers substantially all the risks and rewards of ownership to the lessee. It is recognized on the balance sheet as both an asset and a liability, with interest and depreciation expense recognized in the income statement.
- Recognition and Measurement
- For finance leases, the lessee recognizes the right-of-use asset and lease liability at the lease’s commencement, measured at the present value of lease payments.
- For operating leases, under the new standards, lessees recognize a right-of-use asset and corresponding lease liability based on the present value of lease payments over the lease term.
- Lessor accounting depends on the classification of the lease, with operating leases continuing to be recognized as off-balance sheet items, and finance leases leading to the recognition of a lease receivable and deferred profit.
- Lease Term and Payments:
- The lease term includes the non-cancellable period of the lease and any optional renewal periods that the lessee is reasonably certain to exercise.
- Lease payments consist of fixed payments (including in-substance fixed payments), variable payments based on an index or rate, and amounts probable to be paid under residual value guarantees.
- Subsequent Measurement
- Lessees amortize the right-of-use asset over the lease term, with interest expense on the lease liability being recognized using the effective interest method.
- Lease modifications are assessed and accounted for as separate lease contracts if they result in a change in the scope of the lease.
- Disclosures:
- Both lessees and lessors need to provide extensive disclosures about their lease arrangements, including quantitative and qualitative information about lease assets and liabilities, lease expenses, and significant leasing terms.
