Leases Flashcards
(46 cards)
What is the accounting standard for Leases?
IFRS 16
What is the definition of a lease?
A contract that conveys the right to use an asset for a period of time in exchange for consideration
What is the definition of a lessee?
The entity obtains the right to use an underlying asset in exchange the consideration
What is the definition of a lessor?
The entity provides the right to use an underlying asset in exchange for consideration
What is the definition of a right to use asset?
Represents the lessee’s right to use an underlying asset for the lease term
What is the criteria for identifying a lease?
A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration
Explain the term control
Control of an asset exists where the customer has the right to obtain substantially all of the economic benefits from its use and the right to direct its use
Give an example of when the customer does not have the right to use an identified asset
If the supplier has the practical ability to substitute an alternative asset and would benefit economically from doing so
How do you account for the lease at the commencement date?
Dr Right of use asset (PPE)
Cr Lease liability
How is the right of use asset depreciated?
Shorter of the useful life and lease term
How is the lease liability measured?
Present value of future lease payments
Which discount rate should be used?
- The rate implicit of the lease
- the lessee’s incremental borrowing rate (if above cannot be determined)
Give the 5 examples of what is included in future lease payments
- Fixed payments
- Variable lease payments
- Amounts expected to be payable under residual value guarantees
- Options to purchase the asset that are reasonably certain to be exercised
- Any termination penalties that are expected to be incurred
How is the right of use asset initially recognised?
At cost
What does the initial cost comprise of?
- Lease Liability
- Payments previously made
- Initial direct costs
- Removing or dismantling costs
- LESS lease incentives received
If there is reasonable certainty that the lessee will obtain ownership by the end of the lease term, how would you depreciate?
Over its useful life
How does the lessee measure the lease liability?
= CA at commencement of lease + interest - payments
How would you account for interest on a lease?
Dr Finance Cost
Cr Lease Liability
How would you account for the lease payments?
Dr Lease Liability
Cr Cash
What do you always calculate to?
The next payment date
What do you do when a contract contains a lease and a non lease component?
A lessee either:
- Allocated the consideration to each component of the contract based on the stand alone price of each
- Elects to account for the contract as a single lease (if immaterial)
When is the lease liability remeasured?
- The lease term changes
- The entity changes its assessment of an option to purchase the underlying asset
What is the definition of a short life/ low value asset?
When a lease is for a period of 12 months or less or the underlying asset is of low value when new
What is the simplified accounting treatment for a short life or low value asset?
Lessee can choose to recognise the lease payments as an expense in the SPL on a straight line basis
