Best guide IFRS 16 Lessee modifications

Best guide IFRS 16 Lessee modifications

summarises the process surrounding changes in lease contracts that identify as lease modification.

A lessee that chooses not to apply the practical expedient (IFRS 16 option for rent concessions arising directly from the COVID-19 pandemic that are not going to be accounted for as lease modifications), or agrees changes to its lease contracts that do not qualify for the practical expedient, assesses whether there is a lease modification.

Overview

A change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions meets the standard’s definition of a lease modification.

A lessee accounts for a lease modification as a separate lease if both of the following conditions exist:

  • the modification increases the scope of the lease by adding the right to use one or more underlying assets; and
  • the consideration for the lease increases by an amount equivalent to the stand- alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.

For a modification that is not a separate lease, at the effective date of the modification the lessee accounts for it by remeasuring the lease liability using a discount rate determined at that date and:

  • for modifications that decrease the scope of the lease: decreasing the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease, and recognising a gain or loss that reflects the proportionate decrease in scope; and
  • for all other modifications: making a corresponding adjustment to the right-of- use asset.

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Construction contract

A construction contract is a contract specifically negotiated for the construction of (a combination of) assets that are closely interrelated in terms of design

The perfect 5 step-by-step revenue model

The perfect 5 step-by-step revenue model -IFRS 15 Revenue from Contracts with Customers was issued on 28 May 2014. It supersedes:

  • IAS 18 Revenue; The perfect 5 step-by-step revenue model
  • IAS 11 Construction contracts; The perfect 5 step-by-step revenue model
  • IFRIC 13 Customer Loyalty Programmes; The perfect 5 step-by-step revenue model
  • IFRIC 15 Agreements for the Construction of Real Estate; The perfect 5 step-by-step revenue model
  • IFRIC 18 Transfers of Assets from Customers; and The perfect 5 step-by-step revenue model
  • SIC-31 Revenue – Barter Transactions Involving Advertising Services. The perfect 5 step-by-step revenue model

IFRS 15 will improve comparability of reported revenue over a range of industries, companies and geographical areas globally.

IFRS 15’s objective is to establish principles that … Read more

Contract modifications and variable consideration 1 best 2 complete

Contract modifications and variable consideration are sometimes not easy to distinguish from one another. So here is a discussion bringing them together.

IFRS 15 Revenue from Contracts with Customers (contents page is here) introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. See a summary of IFRS 15 here. Contract modifications and variable consideration

Contract modifications

A contract modification arises when the parties approve a … Read more

Revenue from Contracts with Customers short version

Revenue from Contracts with Customers short version – IFRS 15 Revenue from Contracts with Customers (contents page is here) introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. Revenue from Contracts with Customers short version

Revenue is now recognised by a vendor when control over the goods or services is transferred to the customer. In contrast, IAS 18 Revenue based revenue recognition around an analysis of … Read more

Allocate the transaction price to the performance obligations – Engineering & Construction

Allocate the transaction price to the performance obligations – This part relates to a complete explanation of IFRS 15 Revenue from contracts with customers in respect of Engineering & Construction contracts, see Revenue from Engineering & Construction contracts.


Once the performance obligations are identified and the transaction price has been determined, IFRS 15 requires (with some exceptions, as discussed below) an entity to allocate the transaction price to the performance obligations in proportion to their stand-alone selling prices (i.e., on a relative stand-alone selling price basis).

To allocate the transaction price on a relative stand-alone selling price basis, an entity must first determine the stand-alone selling price (i.e., the price at which an entity would sell a good or … Read more

What can happen to a contract with a customer?

What can happen to a contract with a customer? – IFRS 15 Revenue from Contracts with Customers (contents page is here) introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. See a summary of IFRS 15 here.

In step 1 Identify the contract there are some specifically identified circumstances to capture the day-to-day complexities of selling products and services to customers into useful financial reporting:… Read more

Identify the contract with the customer

Identify the contract with the customer – This part relates to a complete explanation of IFRS 15 Revenue from contracts with customers in respect of Engineering & Construction contracts, see Revenue from Engineering & Construction contracts. Identify the contract with the customer


The model in IFRS 15 applies to each contract with a customer. Contracts may be written, oral or implied by an entity’s customary business practices, but must be legally enforceable and meet specified attributes. Identify the contract with the customer

Attributes of a contract Identify the contract with the customer

To help entities determine whether (and when) their arrangements with customers are contracts within the scope of the model in the standard, the Board identified certain attributes … Read more

Step 1 Identify the contract with the customer

Step 1 Identify the contract with the customer is the starting point of IFRS 15 Revenue from contract with customers. IFRS 15 The revenue recognition standard provides a single comprehensive standard that applies to nearly all industries and has changed revenue recognition quite significant. Step 1 Identify the contract with the customer

IFRS 15 introduced a five step process for recognising revenue, as follows: Step 1 Identify the contract with the customer

      1. Identify the contract with the customer
      2. Identify the performance obligations in the contract
      3. Determine the transaction price for the contract
      4. Allocate the transaction price to each specific performance obligation
      5. Recognise the revenue when the entity satisfies each performance obligation

The first step of identifying the contract with the customer may sound easy as we all know … Read more