I have one question though, How do we treat the security deposits when implementing this standards? Contract with the treatment under IAS 17 between IFRS vs IAS ( International accounting standards are! The lessor recognizes the asset in its balance sheet, which is depreciated over its useful life. Let’s say that based on warehouse’s economic life, lease payments, etc. Will it also be included under PPE in the Lessee’s books? Stated how long until the contract expired and how much the residual contract value that need to be paid. Please note that the cash flow does not change. We are vacating the place at the end of Year 2 . IFRS 16 Leases IFRS 16 Leases will start to apply on all the financial years starting after 1 st January, 2019. Hi Jay, it is the lease modification and in the inception, you do not take this into account (simply take initial payments for full 5 years). 5. Effective date of IAS 17 (Revised 2003) 16 April 2009: IAS 17 amended for Annual Improvements to IFRSs 2009 about classification of land leases: 1 January 2010: Effective date of the April 2009 revisions to IAS 17, with early application permitted (with disclosure) 1 January 2019: IAS 17 will be superseded by IFRS 16 … IASB Meeting — 4 February 2021 (Supplementary) Start: 04 Feb 2021-End: 04 Feb 2021. dr. xxx OK OK guys, sorry for not responding! Regarding accounting treatment, should the rental expenses be booked as per actual rental cost payable or should it be on a straight line basis over the term of the lease by taking into account 10% increment on rent amount every 2 years. S. The effective date is 1 January 2019, so company at present moment can choose to apply between the old IAS 17 is IFRS 16 Please help. Posted on 2 May 2019 29 July 2019 by finlearnhub in C3 - IFRS 16. What happens to the lease liability? Lease of land will still be reported as operating, aren’t I right? is this the same with the previous amortization of the lease liability under PAS 17? Our machines are fully depreciated, but we still use them! Therefore, assuming that you apply older IAS 17: N.p., n.d. I’m not the right person to respond to this question, sorry I just take the rules as they are and try to play with the cards I have. 4.” IFRS 16 Leases: Implementation.” IFRS 16 Leases: Implementation. Here, there is no agreement between the subsidiary and the lessor and no agreement for cross charge between parent and subsidiary. Side by Side Comparison – IAS 17 vs IFRS 16 it’s not really a tangible or intangible asset as such. Lease of assets of a low value (such as computers, furniture etc.). This is the first time I heard about IFRS 16 leases, thank you very much for your presentation. Thank you for you graet explanation. Now I want to ask if there is a circumstance where Right Of Use asset will be higher than Lease liability since we have to recognize ROU asset in the amount equal to Lease liability plus some other items like initial direct cost if any. S. Dear Riaan/Silvia, I have this issue on Operating lease on the book entries for lease premium paid in advance. I would be glad if could assist with this situation: Im so sorry I got confused. Hi Silvia, if a tenant has financial year end other than December 2018, when should the IFRS 16 be applied? No worries. Cr. For me, that’s the main problem. CR: Liase Liability-85,500 . Debit ROU asset Credit Lease liability, where ROU asset = all lease payments in 99 years discounted to present value. You also need to adjust comparatives. Non-cancellable term of 4 years. 1. Zusammenfassung - IAS 17 gegenüber IFRS 16. hmm, not quite sure I understand the questions. . I work for a bank (Ghana) and as usual most of the banking premises are rented. In this situation, will you account them as ROU or PPE? Diferença-chave - IAS 17 vs IFRS 16 O Comitê Internacional de Normas Contábeis (IASC), fundado em 1973, introduziu uma série de normas contábeis denominadas Normas Internacionais de Contabilidade (IAS) que estavam na prática até a incorporação do International Accounting Standards Board (IASB ) … My point is that if you add the value of asset recorded on the lessor balance sheet + the right of use asset on the lessee book , it is not equal to the actual value of the asset. S. Hello, In terms of IAS 17 operating lease, can the lessee capitalise the lease improvements made? lease treatment, and you discovered the following lease terms: I presume that means there is no recognition for lease liability. The effective date of the new IFRS 16 is 1 January 2019. CR:Bank-300,000 Currently company is recognising the amount paid to finance company under salary cost. 2. why did you include the interest and add it to the carried forward liability? dr. cash 1000 The implicit rate and Honey’s incremental borrowing rate is 8% per year. How to ensure the element cost is fairly measured comparing to market prices? S. Thank you for your detail explanation in an understandable way. Annual rental payments are CU 10 000, including the cleaning services, all payable in arrears (at the end of year). The key difference between IAS 17 and IFRS 16 is that according to the old standard (IAS 17) operating leases are not capitalized whereas they are considered as capitalized assets and recorded in the balance sheet under IFRS 16. 1. Insurance and maintenance is the responsibility of lessor. Can it be applied the exception for leases with duration less than one year and expense the rent amount instead of bringing them on BS? S. Thank you. however, where do I charge the amortization? In IAS17 definition of interest rate implicit in the lease clearly states that it should be determined at the lease lease inception (based on the fair value of asset on inception date and discounted to present value to inception date). God bless. Throughout this publication, IAS 17 and the applicable suite of standards that are effective prior to IFRS 16 being adopted are collectively referred to as “IAS 17”. Objective of IAS 17  The objective of IAS 17 (1997) is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosures to apply in relation to finance and operating leases. IFRS 16 vs. IAS 17 – Presentation. All Rights Reserved. IFRIC 12 is excluded from IFRS 16 and I cannot find any other standard addressing this issue. Yes, both lessee and lessor depreciate something. S. Thankyou so much for the wonderful article:). However, as the accounting for some types of previously-called operating lease contracts dramatically changes, we need to distinguish whether we have a lease under IFRS 16 or some other service contract under different standard. IFRS 16 says that you should measure right-of-use asset under cost model, but the fair value model as well as revaluation model are acceptable if they fit more to the specific conditions. Sachin, Can I account this amount as a current asset? Well, these are so broad questions that I will not reply them here in the comment and you need to do a little research on this website, as I answer these in numerous articles and comments. The buyer/lessor pays the whole amount (equal to the value of the land) up front. Dear Silvia, S. Would your answer change now? Not an easy thing, especially when the stand-alone selling prices are not readily available. Therefore, market becomes less and less efficient. Under IFRS 16, if you are a lessee, you do NOT classify the lease anymore and every single lease is reported in the same way. In relation to discount rates- it should be the interest rate implicit in the lease, and if this is impractical to determine, then it should be incremental borrowing rate. The accounting for leases is NOT symmetric anymore. The 376 difference, where does that go in the Balance sheet? Silvia, first of all, I highly appreciate your efforts. S. I came cross that one of my friend’s company leased a land from government for 99 years lease term, but they not recognized it to balance sheet (Right to use land and lease obligation under liabilities)instead charging lease payment to profit or loss. N.p., n.d. Thank you for great article. Do you see any other way to avoid such reversal mechanism as it may be really complex of you have to go through different allocations process (from analytical accounting and costing point of view), Dear Silvia, I would like to first thank you for demystifying IFRSs that seemed to be complicated. Thank you so much for providing such information, I have 2 question, could you please answer them? Hello Sylvia, IAS 17 states that the lease of land is almost always operating, because the land has indefinite useful life. Wesentlicher Unterschiedsbetrag - IAS 17 vs IFRS 16 Der 1973 gegründete International Accounting Standards Committee (IASC) hat eine Reihe von Rechnungslegungsstandards mit dem Namen International Accounting Standards (IAS) eingeführt, die bis zur Einbeziehung des International Accounting Standards Board). How can I solve this case? Thanks for your simple yet informative post. If I’m not mistaken, the definition of Free-cashflows will have to be revised to include the lease payments as an operating outflow. Can we use the average of 12 months sales over 5 years? If a sale and leaseback transaction was accounted for as a sale and operating lease applying MFRS 117, the seller-lessee shall: (a) account for the leaseback in the same way as it accounts for Yes, of course, there can be such circumstance. 3.”IAS Plus.” IAS 17 – Leases. Here, the main argument is based on the ‘Right of Use’ (ROU) where the assets are recognized in the balance sheet if they are being used to generate economic benefit. application; and, (b) adjust the leaseback right-of-use asset for any deferred gains or losses that relate to off-market terms recognised in the Either party can terminate the agreement at any time by giving two month’s notice. The IASB met via video conference on 4 February 2021. The first thing you would look at is whether an underlying asset can be identified. Lease contract – Right to use the land for indefinite period with minimal fee (i.e. The client insist this is an operating lease due to maintenance service element. Hi – thanks for this article – very useful. Usually lease office contract will be described in here. S. How did you reach to the result of 23,341 as a lease liability b/f in the first year? Dear Silvia, Thank you for the brilliant easily understandable article on IFRS 16. rental) with lease increment of 0.2 % every two years. They won’t be recognized both, because you must eliminate intragroup transactions and thus all leasing in subsidiary will be removed on consolidation (there’s no lease from the point of external user). IFRS 16 là gì 4. It would be non-sense to apply IFRS 16 earlier than IFRS 15. The escalation clause is confusing me… 1- I will record the assets and liabilities only or there are any other accounts. 2516 ได้แนะนำชุดมาตรฐานการบัญชีที่ชื่อ Tiêu chuẩn này đưa ra các hướng dẫn để nhận biết và yêu cầu công bố tiếp theo đối với hợp đồng thuê (thỏa thuận trong đó một bên thuê đất, xây dựng, vv cho một bên khác). All the best, good luck! Hi Silvia, Here’s the biggest change: lessees (those who take an asset under lease) do not need to classify the lease at its inception and determine whether it’s finance or operating. The new lease standard will have significant impact on the companies heavily working with operating leases, no questions about it. This item simply does not enter into variable lease payments. this article was written to give a word of warning in order to prepare – it’s by no means exhaustive. Thanks again. Entity C has a 5-year lease for the floor of an office building. Web. It’s just what I was looking for, Congratulations and thanks again! That is the agreement has a fixed fee (guarantees) and variable fee (based on volumes). This is a new accounting standard superseding the old standard for leases, International Accounting Standards (IAS) 17. How did you get CU23,341? any other operating lease that exists at the date of initial Rozdíl mezi IAS 17 a IFRS 16 je dobrým příkladem toho, jak se účtování různých vstupů a výstupů v podniku v průběhu času mění, jakmile jsou k dispozici nové standardy, čímž se staré standardy omezují. are discount factors for 3 years and 5%… etc. Posted on 2 May 2019 29 July 2019 by finlearnhub in C3 - IFRS 16. I’ll be working on that later this year, as I’m still a full-time mom of a little baby. in some parts of your presentations regarding the application of IFRS 16, you indicate that the lease period is determined only for the non-cancellable period (+possible extension of the contract). But in IFRS16 definition of interest rate implicit in the lease does not clarify this, it seems IASB guys remove this intentionally. First, what is the need for an updated standard on leases ? Thank you for this wonderful article. This can be implemented through IFRS16 and for that reason employer will be the lessor and finance company will be the Lessee. The standard is vague with regards to this. Can someone explain as to how this was calculated. This liability was hidden from the readers of the financial statements, as it was not presented anywhere. 1. Thanks for such an elaborate explanation of each and every detail. S. Hi Silvia S. Does the IAS 17 have any limitation, so we need to change to IFRS16? – IFRS 16, Leases is effective for companies from 1 April 2019 in! Thanks! What shall we do? lease liability 900, and every month S. Thank you for your immense contributions. Since in the first place we have already record as long term lease payable. Could you please share the article for more details about the exception. Thanks. Expense for cleaning services of CU 1 429. I must commend your simple writing style devoid of all confusing technical jargons! What about security deposits? In this case, which accounting treatment shall be applied? In your situation, you need to compare the useful life of cars with their economic life (it seems your client rents these cars for most of their useful lives as it’s 5 years), you also need to compare present value of the minimum lease payments with the fair value of the cars, etc. Thanks for your useful video. How the elimination work in such cases? Nýir staðlar eru þróaðir til að komast hjá göllum gamalla. Well, you will simply reverse everything as no lease has ever happened. Obi, I’ve been googling a while and still can’t find the right IFRS, so I’d really appreciate your help. Hi Anna, 2. security deposit – refundable. & Thanks Ashvin unearned Finance Income It basically depends on the conditions of the contract, but sometimes, hire purchase qualifies for lease accounting. your efforts to simplify IFRS is very appreciated and considered. What about lease contracts that do not have an agreed fixed price? I think more people would appreciate the answer. Finance income Hi Lyn, Especially with example it is like a cakewalk to another party). I am asking because of performance ratios, such as current assets/current liabilities, that may be impacted for the worse. This payment includes the payment for rental of the unit n. 13 and its cleaning once per week. Great and wonderful efforts. Showing a finance lease payable in the financial statements seem to indicate a departure of IFRS 16. I would like to know how to calculate the lease liability and right of use asset with the following conditions: In this case, what will be the base of the rent that we should use to PV? Accounting for leases by most countries is very comparable, in that most countries require the application of principles similar to those in IAS 17 (Leases). Just on my question. Yes. S. As you have mentioned that there are two exceptions, in the second exception how can we decide whether the asset has a low value since it is based on judgement.. Hi Lakshitha, By using our website, you agree to the use of our cookies. Remember – keep it simple, revise a lot and re-do past ACCA’s exam questions as much as you can. What is relationship between IFRS 15 adn IFRS 16? Tóm tắt. I cannot say based on the monthly expense – you need to look at the value of an underlying asset and assess. As per this standard can we treat cancellable leases as short term leases. I beg to disagree with your speaker – yes, rent of offices can be affected by IFRS 16, depending on the specific conditions in the contract.

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