The 'Unit of account' definition is used for both assets and liabilities in (un)grouping transactions for financial reporting purposes and is primarily used as a term to which recognition and measurement requirements are applied.
Obligation: A duty or responsibility to act or perform in a certain way. Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement. Obligations also arise, however, from normal business practice, custom and a desire to maintain good business relations or act in an equitable manner. ...continue reading "Present obligation as a result of past event"
The transfer of an economic resource embodies economic benefits that will be required to settle the obligation, resulting in an outflow (in general of cash) from the reporting entity to a third party.
A definition of resource: ...continue reading "Transfer of an economic resource"
A liability is defined as a company's legal financial debts or obligations that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues and accrued expenses. ...continue reading "Liability"
The lease liability will be the present value of the lease payments not paid on the date the contract starts over the lease term. This will be calculated using the interest rate implicit in the lease or, if that is not known, the lessee’s incremental borrowing rate.
The first part of calculations and background information for the simple case IFRS 16 Leases is dicsussed on the web page listed here.
We will not repeat every quarterly payment/journal entry. However the quarterly payment as at 1 December 2015, the year-end financial closing entries and the indexing as at 1 March 2016 will be discussed here.
Separating components of a contract
Some contracts contain a lease coupled with an agreement to purchase or sell other goods or services (non-lease components). These non-lease components are identified and accounted for separately from the lease component. Under IFRS 16 there is a practical expedient that permits lesses to make an accounting policy election, by class of underlying asset, to account for each separate lease component of a contract and any associated non-lease components as a single lease component.
Recognition of a lease
To start for the first time a reporting entity has to review all contracts to see whether a specific contract is a lease only or contains a lease component.
Looking at the definition of a lease the reporting entity has to assess whether, throughout the period of use, the lessee has met the following two rights:
IFRS 16 Scope
IFRS 16 Leases was introduced by IASB in January 2016. IFRS 16 Leases is effective for periods beginning on or after 1 January 2019. Early adoption is allowed, but only in conjunction with IFRS 15 Revenue from Contracts with Customers because significant interactions are likely. This standard will significantly change how lessees account for leases as it removes the distinction between operating and finance leases (around 85% of lease contracts are operating leases). For lessors, IFRS 16 will only have minor effects.