IFRS 16 Leases

International Financial Reporting Standard 16

Issued: in 2016
Effective date: 1 January 2019
What it does:
- It sets the principles for accounting for leases , by both lessors and lessees;
- It provides guidance related to identification of a lease in a contract and separating individual components of a contract;
- Lessees account for all the leases in the same way. At the inception of the lease, they recognize:
  - The right-of-use asset; and
  - The lease liability.
  IFRS 16 then specifies how to measure both elements initially and subsequently, how to account for remeasurements, variable lease payments, etc.
- There are two exceptions for lessees:
  1. Short-term leases (lease term max. 12 months); and
  2. Underlying asset is has a low value when new
  Lessees may account for lease payments as an expense in profit or loss .
- Lessors need to classify the lease as either operating or finance. The accounting treatment depends on the type of the lease:
  - Finance lease: Lessor initially recognizes the receivable equal to net investment in the lease. Subsequently finance income is recognized in profit or loss.
  - Operating lease: Lessor recognizes the lease payments received as income in profit or loss.
- IFRS 16 deals specifically with sale and leaseback transactions and disclosures.

Summary of IFRS 16 Leases
IFRS 16 Leases vs. IAS 17 Leases: How the Lease Accounting Changed
Troubles with IFRS 16 Leases
How to Implement IFRS 16 Leases – this article describes (besides other aspects) the difference between modified and full retrospective approach to transition
Example: How to Adopt IFRS 16 Leases – here, you can see the difference between modified and full retrospective approach illustrated on numerical example
Adopting IFRS 16 – What is the Best Option for You? – in this article, I outline a few alternatives of adopting IFRS 16 with illustrative example. You will actually see the comparison of equity impact of 3 options outlined in the article.
Example: Leases under IFRS 16 during COVID-19 – the standard IFRS 16 has been amended in May 2020 as a response to the coronavirus pandemics in order to ease the life of accountants and simplify the accounting for rent concessions provided by the lessors during the pandemics of COVID-19. Learn here what’s the matter and see the example.
How to present leases under IFRS 16 in the statement of cash flows (IAS 7) – with the video showing the exact steps of how to do that in Excel file

Irregular lease payments -how to account for a lease when the payments are not regular?
What is the lease term of cancellable property rentals under IFRS 16? – imagine you rent an office for an indefinite period… should you account for right-of-use asset?
How to account for rentals depending on inflation and future sales? – imagine you rent an office and your rentals are increased every two years by inflation. How to account for this?
How to determine the incremental borrowing rate? – if you cannot use the interest rate implicit in the lease (most lessees cannot!), how should you determine the discount rate for the lease?
Leases prepaid for years in advance – what to do if you pay for the lease with one lump sum at its inception and there are no lease payments?
New window blinds in a leased office – how do you treat the expenses for the leasehold improvements?

IFRS Kit – learn IFRS in 150+ videos, 150+ excel case studies, quizzes, certificates
Expected Credit Loss for Accountants – highly specialized course focused on ECL under IFRS 9 with step-by-step example related to trade receivables, many practical insights included.