Leasing

Question 1

How does IFRS 16 define a lease?

Answer 1

A contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for consideration

Question 2

What is Commencement Date in relation to Leases?

Answer 2

• The date on which the lessor makes an underlying asset available for use by a lessee
• The date on which the term lease begins

Question 3

What is Lease Term?

Answer 3

• The non-cancellable period for which a lessee has the right to use an underlying asset

Question 4

How is Lease Liability recognised at commencement date?

Answer 4

Measured at the PV of the future lease payments

Question 5

How is a Right-of-use asset recognised at commencement date?

Answer 5

Measured at total cost

Question 6

What are the subsequent measurements associated with leases?

Answer 6

• Recognise interest (finance cost) on the lease liability
• Calculate the depreciation charge on the right-of-use asset

Question 7

When are lesses exempt from being required to recognise assets and liabilities for all leases?

Answer 7

• Short term leases with no purchase option (12 months or less)
• Leases for which the underlying asset is of low value e.g. office equipment