Accounting for lease by Lessee
• The previous version IAS-17 ( Leases ) was criticized because it did not required Lessees to recognize assets and liabilities arising from Operating lease.
• IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets (right-of-use) and liabilities for All leases with a term of more than 12 months (unless the underlying asset is of low valve)
Recognition and Measurement at commencement date
• Right-of-use (Asset)
At commencement date, a lessee should measure the right-of-use (asset) at cost
Cost comprises;
• present valve of lease payments
• any lease payment made at or before the commencement date (less) any lease incentives received.
• any initial direct cost incurred by lessee.
• any disposal/dismantling costs, incurred by lessee.
Subsequent measurement
• Account for any depreciation expense and accumulated impairment losses (if any)
• Liability
At commencement date, a lessee should measure the lease liability at the Present valve of the lease payments, that are not paid at that date.
Subsequent measurement
The lease liability is measured at amortized cost using the effective interest method
Each lease payment consists of TWO elements:
• Finance charge on the liability to the lessor.
• Partial repayment of liability.
Total liability must be divided between:
• current liability
• non-current liability.
Recognition and Measurement Exemption to lessee
A lessee may Elect not to apply the recognition and measurement of right-of-use asset and liability to:
I. short term lease (12 months or less)
II. asset of low valve:
- Examples include; office furniture, laptops, tables, telephones.
• Expense these out on straight line basis or any other method.
Accounting for lease By Lessor
• Finance lease
• In finance lease the lessor does not record the leased asset in its financial statements, as it has transferred the risks and reward. Instead, he records the amount as Receivable.
• Receivable is described as : Net investment (N.I) = Fair valve + Initial direct cost.
Subsequent Measurement:
• Record payments received during the year
• Record finance income
• Operating lease
• The lessor records the leased asset in its financial statement , as he has not transferred the risk and reward of ownership.
• At commencement the lessor add initial direct costs incurred by lessor.
Subsequent measurement:
• Lessor records the depreciation expense, the policy must be consistent with lessor's policy.
• Account for any impairment loss.
• Records Rental Income on a straight-line basis over lease term.
Accounting for Manufacturer Dealer LESSOR
• A manufacturer or dealer often offers to customers to the choice of either buying or leasing an asset. As these are Lessors, therefore lessors accounting treatment are applied.
Finance Lease
A finance lease gives rise to two types of income:
• Profit or loss ( difference between sales and cost )
Finance income.
Operating Lease
• Does not Record Sa
• The previous version IAS-17 ( Leases ) was criticized because it did not required Lessees to recognize assets and liabilities arising from Operating lease.
• IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets (right-of-use) and liabilities for All leases with a term of more than 12 months (unless the underlying asset is of low valve)
Recognition and Measurement at commencement date
• Right-of-use (Asset)
At commencement date, a lessee should measure the right-of-use (asset) at cost
Cost comprises;
• present valve of lease payments
• any lease payment made at or before the commencement date (less) any lease incentives received.
• any initial direct cost incurred by lessee.
• any disposal/dismantling costs, incurred by lessee.
Subsequent measurement
• Account for any depreciation expense and accumulated impairment losses (if any)
• Liability
At commencement date, a lessee should measure the lease liability at the Present valve of the lease payments, that are not paid at that date.
Subsequent measurement
The lease liability is measured at amortized cost using the effective interest method
Each lease payment consists of TWO elements:
• Finance charge on the liability to the lessor.
• Partial repayment of liability.
Total liability must be divided between:
• current liability
• non-current liability.
Recognition and Measurement Exemption to lessee
A lessee may Elect not to apply the recognition and measurement of right-of-use asset and liability to:
I. short term lease (12 months or less)
II. asset of low valve:
- Examples include; office furniture, laptops, tables, telephones.
• Expense these out on straight line basis or any other method.
Accounting for lease By Lessor
• Finance lease
• In finance lease the lessor does not record the leased asset in its financial statements, as it has transferred the risks and reward. Instead, he records the amount as Receivable.
• Receivable is described as : Net investment (N.I) = Fair valve + Initial direct cost.
Subsequent Measurement:
• Record payments received during the year
• Record finance income
• Operating lease
• The lessor records the leased asset in its financial statement , as he has not transferred the risk and reward of ownership.
• At commencement the lessor add initial direct costs incurred by lessor.
Subsequent measurement:
• Lessor records the depreciation expense, the policy must be consistent with lessor's policy.
• Account for any impairment loss.
• Records Rental Income on a straight-line basis over lease term.
Accounting for Manufacturer Dealer LESSOR
• A manufacturer or dealer often offers to customers to the choice of either buying or leasing an asset. As these are Lessors, therefore lessors accounting treatment are applied.
Finance Lease
A finance lease gives rise to two types of income:
• Profit or loss ( difference between sales and cost )
Finance income.
Operating Lease
• Does not Record Sa
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