I just came into my old post about lease accounting. The information in the old post is not valid any more! Thus, I wanted to update it. Here, I’m just giving a quick and briefed summary from lessee prospective (IFRS not GAAP). I might update this later in more details.
What to capitalize
Referring to IFRS 16, starting 1/1/2019, all leases where we have right to use (and control over the use) to be capitalized except for:
- less then 12 months with no option to purchase; and
- a low value when new, i.e., below $5000.
There are other exceptions that I haven’t mentioned here…
A lessee accounts for two parts:
- Asset cost = lease liability + any related (initial/direct) costs.
- Lease liability = Preset value of lease rentals + present value of expected payments at end of lease
(my other post about money time value but in Arabic)
Entries
Recording Lease:
Dr. Right-of-use asset
Cr. Lease liability
Legal fees for negotiating the contract:
Dr. Right-of-use asset
Cr. Cash
The estimated cost of removal, discounted to present value:
Dr. Right-of-use asset
Cr. Provision for asset removal
Depreciation:
Dr. Depr. Exp.
Cr. Acc. Dear.
Interests:
Dr. Interest Exp.
Cr. Lease Liability
Payment:
Dr. Lease Liability
Cr. Cash
Disclosure
It needs Software to do most of it. The information is required to be presented in a single note or as a separate section of the financial statements without duplications.
Quantitative – mainly:
- Additions to right-of-use assets
- Year-end carrying amount of right-of-use assets by class
- Lease liabilities
- Maturity analysis for lease liabilities
- Depreciation charge for right-of-use assets by class
- Interest expense on lease liabilities
- Expense relating to short-term leases
- Expense relating to leases of low-value items
- Expense relating to variable lease payments not included in lease liabilities
- Income from sub-leasing right-of-use assets
- Gains or losses arising from sale-and-leaseback transactions
- Total cash outflow for leases
- Amount of short-term lease commitments if current short-term lease expense is not representative for the following year
Qualitative – mainly:
- Description of how liquidity risk related to lease liabilities is managed
- Use of exemption for short-term and/or low-value item leases
Lease accounting references
IFRS 16 and various websites.
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