Focus on IFRS 16 Leases
summarises the accounting for lessor modifications that depends on – and may change – the lease classification.
Unlike IAS 17 Leases, the new standard provides detailed guidance on the lessor accounting for lease modifications, with separate guidance for modifications to finance leases and operating leases.
However, additional complexities arise for modifications of a finance lease receivable not accounted for as a separate lease for which, under paragraph 80(b) of IFRS 16, the lessor applies the requirements of IFRS 9 Financial Instruments. A number of issues arise due to differences in the basic concepts between IFRS 16 and IFRS 9.
The following diagram summarises the accounting for lease modifications by a lessor.
|Separate lease||Not a separate lease – Finance to operating||Not a separate lease – Finance to finance||Lessor modifications to operating expenses|
* A lessee reassessment of whether it is reasonably certain to exercise an option to extend, or not to exercise a termination option, included in the original lease contract is not a lease modification
Leveraged buyout IFRS 3 best reporting – In corporate finance, a leveraged buyout (LBO) is a transaction where a company is acquired using debt as the main source of consideration. These transactions typically occur when a private equity (PE) firm borrows as much as they can from a variety of lenders (up to 70 or 80 percent of the purchase price) and funds the balance with their own equity. Leveraged buyout IFRS 3 best reporting
The use of leverage (debt) enhances expected returns to the private equity firm. By putting in as little of their own money as possible, PE firms can achieve a large return on equity (ROE) and internal rate of return … Read more
Sale and leaseback accounting – IFRS 16 makes significant changes to sale and leaseback accounting. A sale and leaseback transaction is one where an entity (the seller-lessee) transfers an asset to another entity (the buyer-lessor) for consideration and leases that asset back from the buyer-lessor.
A sale and leaseback transaction is a popular way for entities to secure long-term financing from substantial property, plant and equipment assets such as land and buildings. IAS 17 covered the accounting for a sale and leaseback transaction in considerable detail but only from the perspective of the seller-lessee. As IFRS 16 has withdrawn the concepts of operating leases and finance leases from lessee accounting, the accounting requirements that the seller-lessee must apply to a … Read more
Leasehold makegood and restoration provisions – Lease makegood / leasehold restoration provisions should be recognised in relation to properties held under operating leases. Such a provision may arise because many property leases contain clauses under which the lessee has to make good dilapidations or other damage which occurs to the property during the course of the lease or restore a property to a specified condition.
Under IAS 37 14, a provision shall be recognised when: Leasehold makegood and restoration provisions leased office
Summary 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:
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”
IFRS 15 “Revenue Recognition from Contracts with Customers”
This standard came into force on January 1, 2018.
In accordance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”, the standard has been applied retrospectively … Read more
If the acquired company (target company) in a business combination under IFRS reporting is a party to lease contracts at the date of acquisition, the acquirer needs to record these leases as part of . The acquired company can either be lessee (obtaining the … Read more