1What is the objective of IFRS 16?
The objective of IFRS 16 is to establish principles for the recognition, measurement, presentation, and disclosure of leases to ensure that lessees and lessors provide relevant information in financial statements.
2What is the main difference between IFRS 16 and previous lease accounting standards?
Under IFRS 16, lessees are required to recognize all leases on the balance sheet, with a right-of-use (ROU) asset and a corresponding lease liability. Previously, leases were classified as operating or finance leases, and operating leases were off-balance-sheet.
3How does a lessee recognize a lease under IFRS 16?
Right-of-use (ROU) asset: Recognized at the present value of lease payments plus initial direct costs.
Lease liability: Recognized at the present value of future lease payments.
4How is a right of use asset depreciated?
Over the lower of the lease term and life of the asset
5How is the lease liability measured?
The lease liability is measured at the present value of lease payments due over the lease term, using the interest rate implicit in the lease or the lessee’s incremental borrowing rate if the implicit rate cannot be readily determined.
6What are the components of lease payments under IFRS 16?
Fixed payments (including in-substance fixed payments)
Variable lease payments based on an index or rate
Amounts expected to be payable under residual value guarantees
Exercise price of purchase options (if reasonably certain to be exercised)
Termination penalties (if reasonably certain to terminate the lease early)
7How should lease payments be accounted for?
Finance cost (Interest expense): Recognized in profit or loss over the lease term.
Principal repayments: Reduces the lease liability on the balance sheet.
8What is the accounting treatment for short-term leases under IFRS 16?
A: For leases with a lease term of 12 months or less and no purchase option, lessees can elect not to recognize the ROU asset and lease liability. Instead, lease payments are expensed on a straight-line basis.
9How does IFRS 16 treat leases with low-value assets?
: Lessees can exempt leases of low-value assets (e.g., personal computers, office furniture) from the requirement to recognize a ROU asset and lease liability, and instead expense lease payments.
10What are the key disclosures required under IFRS 16 for lessees?
The total lease liabilities
Maturity analysis of lease liabilities
Expense recognized from short-term leases and low-value leases
Reconciliation of the opening and closing balances of ROU assets and lease liabilities
11What is the treatment for sale and leaseback transactions under IFRS 16?
In a sale and leaseback transaction, the seller-lessee must derecognize the asset sold, and the leaseback is treated as a lease under IFRS 16. Any profit or loss on the sale is recognized based on the transaction’s classification (whether it is a finance or operating lease).