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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"

Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement. This is normally the case, for example, with amounts payable for goods and services received. However, obligations do not have to be legally binding. ...continue reading "Obligation"

Definition: A liability is a present obligation of the entity to transfer an economic resource as a result of past events.

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.

Lease payments ...continue reading "IFRS 16 Leases – Lease liability"

The first part of calculations and background information for the simple case IFRS 16 Leases is dicsussed on the web page listed here.

Simple case IFRS 16 Leases – Fixed payments depending on an index and rent free period

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.

Qtr payment 1 December 2015: ...continue reading "Simple case IFRS 16 Leases – Fixed payments depending on an index and rent free period – Last part"

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

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.

...continue reading "IFRS 16 into the details – 2"

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:

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:

  1. the right to obtain substantially all of the economic benefits from the use of the identified asset, and
  2. the right to direct the use of the identified asset.

...continue reading "IFRS 16 into the details – 1"

Following IFRS 16 almost all leases are recognised in the statement of financial position as assets and liabilities.

Introduction

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.

...continue reading "IFRS 16 Leases"