Impairment test before and after IFRS 16 Leases

Below is a simplified example of an impairment test that shows the situation pre-IFRS 16 and post-IFRS 16 and the effects of adjusting the (pre-tax) discount rate. The CGU has a finite life of five years, with no residual value. The lease term and useful life of the right-of-use asset are also five years.

Pre-IFRS 16

Treatment of lease liabilities

The recognition of right-of-use assets with corresponding lease liabilities raises the question of whether and how the lease liabilities associated with the right-of-use assets should be considered when performing impairment assessments. In our view, the treatment of lease liabilities may differ in practice depending on whether the recoverable amount is based on the assets’ fair value less cost of disposal (FVLCD) or value in use (VIU).

In general, liabilities are ignored when performing an impairment test of a CGU, meaning … Continue reading

Impairment of right-of-use assets

In IFRS 16, lessees must record a right-of-use asset and a lease liability for all lease arrangements in their statement of financial position. Under IFRS 16, these ‘new’ right-of-use assets will be subject to the impairment requirements of IAS 36.

When to test for impairment?

Similar to other assets, a right-of-use-asset will only be tested for impairment when impairment indicators exist. If impairment indicators exist, an entity must determine whether the right-of-use-asset can be tested on a stand-alone basis or … Continue reading

Implementation IFRS 16 Leases Air France KLM

In the Registration Document 2018 including the annual financial report by AIR FRANCE KLM GROUP the Group implemented IFRS 16 and IFRS 15 and IFRS 9. Here are some excerpts from the document to illustrate the effects:

[Air France KLM – 2018 Registration document – page 220]

note 2. Restatement of 2017 Financial statements

Since January 1, 2018, the Air France – KLM Group has applied the following three new standards:

IFRS 9 “Financial Instruments”

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Leases capitalisation on the balance sheet


IFRS 16 includes a single accounting model for all leases by lessees.

The main implications of the new standard on current practice for lessees include:

  • No more operating leases under IFRS 16 (subject to the exceptions described below)
  • All leases (subject to the exceptions described below) will be capitalised on the balance sheet by recognising a ‘right-of-use’ asset and a lease liability for the present value of the obligation
  • No rental expense! i.e. no more straight-line expenses for operating
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IFRS 16 Leases


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 … Continue reading

IFRS 16 into the details – 2

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 – 1

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
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Case IFRS 16 Lease car contract

Because this is a quite frequently used type of lease it is good to get an understanding of how to apply IFRS 16 on a car lease. This includes all the detailed calculations in spreadsheet examples (including Excel functions used) needed to record the correct entries.

The case:

Contract commencement date: 27/02/2017
Lease term: 48 months
The lessor’s investment in the car is EUR 20,872.33
The residual value of the car is EUR 12,112.00
The monthly lease payment … Continue reading

IFRS 16 Leases Booklet

This Booklet sets out the principles for the recognition, measurement, presentation and disclosure of leases.



Recognition of a Lease and Portions of assets

Separation of components of a contract / Separating non-lease components / Combine separate lease contract

Right to Use

Lease liability

Sale and leaseback accounting


Does a contract include a lease? – A decision tree

When is an asset identified? – Some explanations

Right to

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