IFRS 16 Leases - Beginner to Advance

Identify if a contract is a lease under IFRS 16 by examining asset identification, the right to direct use and substantial economic benefits, and the absence of substitution rights.

Explore how to identify an underlying asset under IFRS 16 by examining explicit and implicit asset identification in lease contracts, with examples of trucks, land, and power plants.

Learn how to identify right to direct use and predetermined decisions under IFRS 16, and assess whether the customer controls the asset, indicating a lease.

Evaluate the substantive right to substitute by assessing whether the supplier can substitute assets throughout the period of use and economically benefits from doing so, determining lease existence.

Identify the lease term by defining the non-cancelable period and including periods with lessor termination rights. Evaluate extension and termination options based on reasonably certain exercise to adjust the term.

Explore IFRS 16 lessee accounting, including the exemption option and initial measurement of lease liability and right-of-use asset. Learn present value of lease payments using implicit or incremental borrowing rates.

Compute the discount rate using implicit rate and incremental borrowing rate, via IRR-like Excel method, balancing present value of lease payments, unguaranteed residual value, fair value, and initial direct cost.

Explain the incremental borrowing rate for IFRS 16 lease discounting and why WACC is inappropriate, and outline revision scenarios for term changes and lease modifications.

Understand in-substance fixed payments under IFRS 16, differentiate them from variable payments, and explain the three scenarios where apparent variability remains fixed in substance.

Classify variable lease payments under IFRS 16 into index-linked and performance-based; remeasure lease liability when indexes change, and recognize performance-based payments in profit and loss as they occur.

Explore residual value concepts under IFRS 16, distinguishing guaranteed and unguaranteed residual values, and explain their effects on lessee and lessor accounting, including remeasurement and impairment considerations.

Evaluate at lease inception whether exercising options like extension, termination, or asset purchase is reasonably certain. Consider termination penalties, guaranteed residual value, and costs on termination to gauge economic benefits.

Review the lessee overview under IFRS 16, covering lease liability components, right-of-use asset, and exemptions for short-term and low-value leases.

Apply IFRS 16 to a building lease, calculate lease liability and right-of-use asset, recognize initial costs and incentives, and disclose lessee information in financial statements.

Explore the lessor perspective under IFRS 16, distinguishing finance and operating leases with indicators and examples, including derecognition of the asset and recognition of the net investment (lease receivable).

Apply indicators like cancellation losses, residual value fluctuations, and secondary lease options to classify leases as finance or operating. A case study shows substantial coverage and a finance lease conclusion.

Explore unguaranteed residual value and its impact on lease receivables, impairment, PV calculations, and derecognition of PPE under IFRS 16.

Assess a comprehensive lessor accounting case study under IFRS 16, covering lease classification, PV of lease payments, impairment of unguaranteed residual value, and disclosure in financial statements.

Explore how manufacturer or dealer lessors apply IFRS 16, recognizing revenue as the lower of fair value or lease present value. Use market rate; include cost of sale.

Identify and allocate lease and non-lease components in multi-asset contracts using relative standalone prices; apply incidental expenses and the practical expedient.

Explore IFRS 16 lease modification, including increases in scope treated as separate leases when aligned with standalone price, and decreases or other modifications remeasured at the modification date discount rate.

Understand lease modification under IFRS 16, including remeasuring lease liability and ROU after changes in scope, rent, or extension, and recognizing gains, losses, and deltas.

Explain how covid-19 rent concessions are treated under IFRS 16 using the practical expedient, outline eligibility conditions, and compare waiver vs deferral scenarios with required disclosures.

Explore sublease accounting under IFRS 16, detailing head lessor, intermediate lessor, and sublessee responsibilities, with finance versus operating leases, exemptions, and ROU asset and lease liability flows.

Explore sale and leaseback under IFRS 15 and IFRS 16, determining sale versus financing, recognizing right-of-use assets and liabilities, and proportionate profit based on PV of lease payments and fair value.

Explore how IFRS 16 handles sale and leaseback when sale value differs from fair value, including financial liability, prepayment adjustments, and ROU retained and transferred.

Explore the gaps between IFRS 16 and ASC 842, including lessee exemptions for low value assets and the operating lease classification. Compare Ind AS 116 differences.

You have completed this IFRS 16 leases course and gained knowledge to advise on lease identification, classification, and recognition, with a quick reference card for quick recall.