Question

can you give me an overview for IFRS 16 and if there’s any new changes in this IFRS and what is the most important goals to this IFRS?

Answer 1

Overview

A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for period of time in exchange for consideration. Control is conveyed where the customer has both the right to direct the identified asset use and to obtain substantially all the economic benefit from that use.

IFRS 16 a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

Objective

· Faithfully represents lease transactions and

· Provides a basis for users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

IFRS 16 leases applicable to all leases ,including sublease ,except for

· Lease to explore for use minerals, oil, natural gas and similar non-regenerative resources

· Lease of biological assets held by a lessee

· Service concession arrangement

· Licences of intellectual property granted by a lessor

· Right held by a lessee under licensing agreement for item such as film, video, plays, manuscripts, patents and copyrights

Recent Changes

Provide lessees with an exemption from assessing whether a COVID -19-related rent concession is a lease modification.

Require lessees : related rent concession as if they were not lease lease modification.

Require lessees that were not lease modifications.

Goals

Lessees apply a single on-balance sheet lease accounting model.

Lessees remeasure the lease liability for changes in variable lease payments based on an index or rate on the date when there is a change in the contractually required cash flows.

In sale and lease back transactions ,If the seller-lessee has a substantive option to repurchase the underlying asset, the transfer is not a sale. The seller-lessee measures the right-of-use asset at the retained portion of the previous carrying amount of the underlying asset. Only the amount of any gain or loss related to the rights transferred to the buyer-lessor is recognized.

In Sublease ,Unless the sublessor for the head lease applies the recognition and measurement exemption applicable to short-term leases, a sublessor classifies a sublease by reference to the right-of-use asset arising from the head lease.

Under US GAAP, leases classified as finance leases are treated as financing arrangements from an income statement perspective; while the lessee will report an asset and a liability related to all leases on its balance sheet (like IFRS), the Day Two accounting for operating leases will generally continue to produce a straight-line total lease expense.