20 years: Chartered accountant & educator
In this video, Saket outlines the impact of IFRS 16 on the balance sheet. He provides two examples; one explaining the application of the definition of lease in IFRS 16, the other demonstrates a situation where the contract fails to meet the definition of a lease.
In this video, Saket outlines the impact of IFRS 16 on the balance sheet. He provides two examples; one explaining the application of the definition of lease in IFRS 16, the other demonstrates a situation where the contract fails to meet the definition of a lease.
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9 mins 57 secs
In this video, Saket outlines the impact of IFRS 16 on the balance sheet, and how to determine the initial recognition and the subsequent measurement of lease liability and of the right-of-use asset.
Key learning objectives:
Understand how to determine the initial recognition and the subsequent measurement of lease liability
Understand how to determine the initial recognition and the subsequent measurement of the right-of-use asset
Outline the profit or loss impact of the lease
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Air France-KLM Group has adopted IFRS 16 Leases and disclosed at 31 of December 2018.
An entity leases a car on the following terms:
The entity used the car as follows:
(a) The lease liability is initially recognised at the present value of these lease payments. The present value is shown in the table below: The lease liability of £20,000 is the sum of the present value of each of the three lease payments of £7,200 discounted at the rate of 3.95%.
(b) The subsequent measure of lease liability is as follows: Interest = 20,000 x 3.95% = 790. End of year lease liability = 20,000 - (7,200 - 790) = £13,590.
In addition to the above, the initial direct costs of entering into the lease are £1,000.
(a) Using the present value table from above, the right-of-use asset is initially recognised at £20,000 + £1,000 = £21,000. This includes initial direct costs of £1,000.
(b) The subsequent measurement of the right-of-use asset is shown in the table below: The right-of-use asset is depreciated on a straight-line basis over the lease term since the asset would be returned back to the lessor at the end of the three years.
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