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Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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+1,000 expert presented, on-demand video modules

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Gain CPD / CPE credits and professional certification

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Build, scale and manage your organisation’s learning

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Connect Finance Unlocked to your current platform

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Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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IFRS 16 Lease Classification

IFRS 16 Lease Classification

Saket Modi

20 years: Chartered accountant & educator

In the third part of this series, Saket provides an example to explain the application of the definition of lease in IFRS 16. It includes consideration of substantive vs protective rights in determining whether a contract is a lease.

In the third part of this series, Saket provides an example to explain the application of the definition of lease in IFRS 16. It includes consideration of substantive vs protective rights in determining whether a contract is a lease.

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IFRS 16 Lease Classification

4 mins 51 secs

Key learning objectives:

  • Using the examples, identify what constitutes as an IFRS 16 Lease

Overview:

In this video, Saket outlines two examples, first an oil company entering into a contract with a ship-owner, and secondly, where a coffee company enters into a contract with an airport operator. In both examples, whether the contract meets the definition of a lease is highlighted.

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Summary
Example 1: An Oil company enters into a contract with a ship-owner to charter a particular tanker for 15 years. The Oil company decides when and to which ports the tanker sails and the oil to be transported. The contract specifies that the oil company cannot transport particular types of products, for example, explosives. Under the contract, the ship-owner provides the crew that operate and maintain the ship.

Using Example 1, Is the contract an IFRS 16 Lease, and if so, why?

Yes, this contract is an IFRS 16 Lease.

  • The tanker is an identified asset which the Oil company has the right to use for 15 years
  • The Oil company has the right to direct the use of the tanker by having the ability to make decisions about when and to which ports the tanker sails and the oil to be transported
  • This gives the oil company the right to obtain substantially all of the benefits from the use of the identified asset (the tanker)
  • The contractual restrictions on the products that can be transported are protective rights, as opposed to substantive rights of the ship-owner
  • The crew and maintenance of the ship are non-lease or service components

Example 2: A coffee company enters into a contract with an airport operator to use space in the airport to sell its goods for a three-year period. The coffee company is the customer and the airport operator is the supplier. The contract states the amount of space and that the space may be located at any one of several boarding areas within the airport.

The Supplier has the right to change the location of the space allocated to the Customer at any time during the period of use. There are minimal costs to the Supplier associated with changing the space for the Customer. The Customer uses a kiosk (that it owns) that can be moved easily to sell its goods. There are many areas in the airport that are available and that would meet the specifications for the space in the contract.

Using Example 2, Is the contract an IFRS 16 Lease, and if so, why?

No, this contract is not an IFRS 16 Lease.

  • There is no identified asset. The customer controls its owned kiosk, however, the contract is space in the airport, and this space can change at the discretion of the supplier
  • The supplier would benefit economically from substituting the space. There is minimal cost associated with changing the space
  • Since the supplier has substantive right to substitute the space, this is not an IFRS 16 Lease

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Saket Modi

Saket Modi

Saket is a financial trainer and consultant based out of London. He specialises in advanced accounting, financial reporting and financial analysis, particularly with regards to International Financial Reporting Standards (IFRS), International Public Sector Accounting Standards (IPSAS) and Financial instruments.

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