Chapter 4 - Leases Flashcards
(18 cards)
What standard covers leases and right-of-use assets?
IFRS 16
When did IFRS 16 for leases take effect
Periods beginning on or after 1 January 2019
An entity (as lessor) licences intellectual property. Is this covered by IFRS 16 and treated as a lease?
No. This would be covered by IFRS 15 (Revenue from Contracts with Customers)
An entity has a licensing agreement entered into by a lessee for motion pictures, video recording, manuscripts, patents or copyrights.
Are these treated as a lease under IFRS 16?
No.
This is covered under IAS 38 as an intangible asset.
What is the definition of a lease per IFRS 16?
Contract or part of a contract
Conveys the right to use an asset
For a period of time
In exchange for consideration.
What are the 2 types of leases per IFRS 16?
- Finance lease - transfers substantially all the risks and rewards incidental to ownership
- Operating lease - does not transfer all the risks and rewards incidental to ownership
True or false:
An operating lease transfers substantially all the risks and rewards incidental to ownership of an underlying asset.
False.
When the risks are transferred, this is a finance lease.
An operating lease does NOT transfer the risks and rewards of an underlying asset.
What points should be considered when determining whether an agreement contains a lease under IFRS 16?
- Whether throughout the period of use the customer has the right to obtain substantially all of the economic benefits from use of the identified asset
- Whether it has the right to direct the use of the identified asset
What are items that would be excluded from IAS 16 ?
- Leases for exploration of minerals / non-regenerative resources
- Leases of biological assets under IAS 41
- Service concession arrangements
- Licences of IP that are in the scope of IFRS 15
- Licencing that is entered into under IAS 38 by a lessee for items such as motion picture recordings, plays, manuscripts, patents and copyrights
What other exceptions are there from IAS 16?
- Short term lease
- Leases for which the underlying asset has a low value
For lessees, how should leases (that are not exempt) be treated?
Balance sheet -
- Recognise a non-current “right of use” asset at cost
- Recognise a liability for the total amount of the lease obligation
P&L -
- Recognise a charge for the depreciation of the right of use asset
- Recognise finance charge for the year
When recognising leases as a lessee, what date should initial recognition be completed?
The commencement date when available to the lessee
How is a right-of-use asset initially recorded for a lessee?
At:
a. The amount of the initial liability
b. Any lease payments (less incentives received) before the commencement date
c. Any initial direct costs incurred by the lessee
d. An estimate of costs in dismantling the asset
Measure at present value of the lease payments not paid at that date. Discount by using the interest rate implicit in the lease if that can be determined, otherwise the lessee’s incremental borrowing rate.
For the interest component of a lease, what period should the lease be recognised over?
The period which the lease liability is in existence - i.e. until the last payment is made.
When recognising a lease liability for the first time, how is fair value treated?
Initial asset value / liability is recognised at fair value, or, if lower - the PV of all future lease payments.
Where there is a change to lease payments that were already provided in the lease, how is the lease remeasured?
Adjust the right-of-use asset.
Need to establish whether it needs to be treated as a separate lease or a change to the existing lease.
Separate if:
(a) Modification increases the scope of the lease by adding the right to use one or more underlying assets
(b) Consideration for the lease increases by an amount commensurate with the stand-alone price
If not met, lease liability is remeasured using the revised terms and a new discount rate.
What disclosures are required by lessees under IFRS 16?
- Depreciation charges
- Interest
- Expense related to short term or low value assets where recognition exemption has been taken?
- Expense relating to variable lease payments not included
- Total cash outflow for leases
- Additions to ROU assets
- Gains / losses from sale + leaseback
- Carrying amount of right-of-use assets at the end of the period.
Where the IAS 16 recognition exemption is taken (i.e. for less than 12 months leases or low value assets), how are lease payments recorded?
As an expense on a straight line or systemic basis
