Lease Accounting

I just came into my old post about accounting for lease. 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.

lease agreement

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:

  1. less then 12 months with no option to purchase; and
  2. 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)


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

Dr. Depr. Exp.
Cr. Acc. Dear.

Dr. Interest Exp.
Cr. Lease Liability

Dr. Lease Liability
Cr. Cash


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

References: IFRS 16 and various websites.

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