IFRS Standard: IFRS 16 Leases

This Standard (IFRS 16) sets out the principles for the recognition, measurement, presentation and disclosure of leases. The objective is to ensure that lessees and lessors provide relevant information in a manner that faithfully represents those transactions. This information gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of an entity.

IFRS 16 Objective Scope Recognition exemptions

Objective

1 This Standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. The objective is to ensure that lessees and lessors provide relevant information in a manner that faithfully represents those transactions. This information gives a basis for users of financial statements to assess the effect that leases have on the financial position, …

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IFRS 16 Identifying a lease

9 At inception of a contract, an entity shall assess whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Paragraphs B9–B31 set out guidance on the assessment of whether …

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IFRS 16 Lease term

18 An entity shall determine the lease term as the non-cancellable period of a lease, together with both:

  1. periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and
  2. periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.

19 …

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IFRS 16 Lessee

Recognition

22 At the commencement date, a lessee shall recognise a right-of-use asset and a lease liability.

Measurement

Initial measurement

Initial measurement of the right-of-use asset

23 At the commencement date, a lessee shall measure the right-of-use asset at cost.

24 The cost of the right-of-use asset shall comprise:

  1. the amount of the initial measurement of the lease liability,
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IFRS 16 Lessor

Classification of leases

Application Guidance in Appenbdix B, paragraphs B53–B58

61 A lessor shall classify each of its leases as either an operating lease or a finance lease.

62 A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. A lease is classified as …

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IFRS 16 Sale and leaseback transactions

98 If an entity (the seller-lessee) transfers an asset to another entity (the buyer-lessor) and leases that asset back from the buyer-lessor, both the seller-lessee and the buyer-lessor shall account for the transfer contract and the lease applying paragraphs 99–103.

Assessing whether the transfer of the asset is a sale

99 An entity shall apply the …

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IFRS 16 Appendix B Application Guidance

This appendix is an integral part of the Standard. It describes the application of paragraphs 1–103 and has the same authority as the other parts of the Standard.

Portfolio application

B1 This Standard specifies the accounting for an individual lease. However, as a practical expedient, an entity may apply this Standard to a portfolio of leases with similar characteristics …

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IFRS 16 Appendix B Recognition exemption – Low value lease

Recognition exemption: leases for which the underlying asset is of low value

Application Guidance to paragraphs 5 – 8

B3 Except as specified in paragraph B7, this Standard permits a lessee to apply paragraph 6 to account for leases for which the underlying asset is of low value. A lessee shall assess the value of an underlying asset based on …

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IFRS 16 Appendix B – Identifying a Lease

Application Guidance to paragraphs 9 – 11

B9 To assess whether a contract conveys the right to control the use of an identified asset (see paragraphs B13–B20) for a period of time, an entity shall assess whether, throughout the period of use, the customer has both of the following:

  1. the right to obtain substantially all of the economic benefits
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IFRS 16 Appendix B – Seperating components of a contract

Application Guidance to paragraphs 12 -17

B32 The right to use an underlying asset is a separate lease component if both:

  1. the lessee can benefit from use of the underlying asset either on its own or together with other resources that are readily available to the lessee. Readily available resources are goods or services that are sold or leased separately
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