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IFRS 16 Leases

International Financial Reporting Standard 16

Overview of IFRS 16

  • Issued: in 2016
  • Effective date: 1 January 2019
  • What it does:
    • It sets the principles for accounting for leases , by both lessors and lessees;
    • It provides guidance related to identification of a lease in a contract and separating individual components of a contract;
    • Lessees account for all the leases in the same way. At the inception of the lease, they recognize:
      • The right-of-use asset; and
      • The lease liability.

      IFRS 16 then specifies how to measure both elements initially and subsequently, how to account for remeasurements, variable lease payments, etc.

    • There are two exceptions for lessees:
      1. Short-term leases (lease term max. 12 months); and
      2. Underlying asset is has a low value when new

      Lessees may account for lease payments as an expense in profit or loss .

    • Lessors need to classify the lease as either operating or finance. The accounting treatment depends on the type of the lease:
      • Finance lease: Lessor initially recognizes the receivable equal to net investment in the lease. Subsequently finance income is recognized in profit or loss.
      • Operating lease: Lessor recognizes the lease payments received as income in profit or loss.
    • IFRS 16 deals specifically with sale and leaseback transactions and disclosures.

Articles about IFRS 16

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