Summary
Summary IFRS 16 - Lessee
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IFRS 16 - Lessee summary
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LesseeOverview
- Legally Lessee not the owner but can however obtain ownership.
- Lessee obtain right to use the asset
Definitions: Appendix A
- NB difference – Inception and commencement of the lease.
- At inception the parties asses whether the contract contain a lease.
- At commencement date: date asset is made available and recognized.
Identification: is there a lease or not in the contract? Par 9-17 and B9 to B14
1. Asset
2. Contract
3. Right to use an asset
4. Period of time
5. In exchange for consideration.
Is the Asset Identified?
- explicitly or implicitly identified. B13
- as portion of a larger asset = an asset if it can be physically distinct. B20
Does the supplier have a substantive right substitute the asset throughout the
period? If yes, no lease exist.
The right is substantive if both the following is met:
- Supplier have the practical ability to substitute the asset throughout. Customer
cannot prevent it. NB – If the supplier can only substitute the asset after a particular
date or specified event, the right is not substantive. AND
- Supplier would benefit economically from the substitution.
Does the lessee have the right to control the asset?
2 requirements
- lessee must have the right to obtain substantially all the economic benefits from
use of the asset AND
- Have the right to direct the use of the asset.
Right to obtain all the economic benefits?
- Benefits can be obtained directly or indirectly
- Need to have excusive use of the asset throughout the period of use
- Benefits to ownership of the asset is ignored.
- If the customer must pay the supplier/third party a portion of the cash flows of the
asset it is regarded to be economic benefits that the lessee obtains.
Right to direct the use of the asset?
3 situations can be applicable.
1. Customer has right to say for what asset can be use OR
2. The decisions about how and for what purpose the asset will be used is
predetermined and
2.1 customer have the right to operate asset throughout without the supplier having
the right to change operating instructions or
, 2.2 the customer designed the asset in a way that predetermine the use of the asset
throughout.
NB – decisions about operating and maintaining an asset give no right to direct the
use, unless the use of the asset is predetermined.
- Protective rights doesn’t affect the assessment of who has the right to direct the
asset.
Separating components of a contract
- contract can have combination of lease components or combination of lease and
non-lease components.
- Each lease component must be identified and recorded separately unless the
lessee apply the practical expedient. (Don’t have to separately account for lease
and non-lease components if the non-lease component is not material)
Right to use an asset is a separate component if both the following is met:
a) Lessee can benefit from the asset on its own. Lessee can benefit from the asset
together with other resources readily available AND
b) The asset is not highly dependent the other assets in the contract. The asset is
also not highly connected/related with the other assets in the contract.
Allocating consideration to the separate components of a contract:
Allocate on the basis of
- Stand-alone price of each lease component
- Aggregate stand-alone price of the non-lease components.
- Stand-alone price = the price the lessor would charge the lessee for only that
component separately
Combination of contracts
- Contracts entered into around same time with same supplier
- Must combine such contracts to single contract if one of the following conditions is
met.
1. contracts is a package with one commercial goal and cannot be understood
without the other assets OR
2. Amount payable of one contract depends on the price of performance of the other
contract OR
3. Assets involved are a single lease component.
Recognition and Measurement (Initial) Lease Liability.
1. General approach or
2. Simplified approach
General approach
Lessee recognize ROU – asset and Lease liability.
3 important components in measuring the lease:
1. Interest rate.
2. Lease term.
3. Lease payments.
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