IFRS 16 - Leases Flashcards
why is this standard needed
to fairly compare firms who borrow to buy assets and those who lease assets
what is a lease
an agreement where a lessor gives the lessee the right of use of an asset for an agreed period of time in return for consideration
what is the lease meeting criteria
the lessee must:
- obtain all economic benefits from the use of the asset
- the right of direct use of asset
what is an identified asset
specific asset
only that asset
only substituted when needs to be served/repaired
what is right of use
customer has right to direct how asset is used
how to calculate right of use asset value
lease liability
+ initial costs eg deposit
+ any set up costs
what is the lease liability
present value of all future repayments
over what time period are leased assets depreciated
shorter of useful life and the lease term
exception: when the asset transfers ownership to the lessee at the end of the lease term => useful life
what is included in the current liabilities lease liability
next years interest
how are short term leases and low value leases accounted for
DR P/L Finance Costs
CR Bank
what is considered a short term lease
12 months or less
what is considered a low value lease
value of asset <5000
