IFRS 16 | Leases

1

Objective

The objective is to specify the principles for the recognition, measurement, presentation and disclosure of leases to ensure faithful representation of transactions.

2

Scope

An entity shall apply this Standard to all leases, including leases of right-of-use assets in a sublease, except for:

(a) leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources;

(b) leases of biological assets (IAS 41);

(c) service concession arrangements (IFRIC 12);

(d) licences of intellectual property (IFRS 15); and

(e) rights held by a lessee under licensing agreements (IAS 38).

3

Intangible Assets

A lessee may, but is not required to, apply this Standard to leases of intangible assets other than those described in paragraph 3(e).

4

Recognition Exemptions

A lessee may elect not to apply the requirements in paragraphs 22-49 to:

(a) short-term leases; and

(b) leases for which the underlying asset is of low value (as described in paragraphs B3-B8).

5

Exemption Accounting

If a lessee elects the exemptions in paragraph 5, it shall recognise lease payments as an expense on a straight-line basis over the lease term or another systematic basis if more representative of the pattern of the lessee's benefit.

6

Short-term Lease

If a lessee accounts for short-term leases using the exemption, it shall consider the lease to be a new lease if there is a lease modification or a change in the lease term.

9

Identifying a Lease

At inception of a contract, an entity shall assess whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

10

Reassessment

An entity shall reassess whether a contract is, or contains, a lease only if the terms and conditions of the contract are changed.

12

Separating Components

For a contract that is, or contains, a lease, an entity shall account for each lease component within the contract as a lease separately from non-lease components, unless the lessee applies the practical expedient in paragraph 15.

13

Lessee Allocation

For a contract containing a lease component and additional components, a lessee shall allocate the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

15

Practical Expedient

As a practical expedient, a lessee may elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component.

17

Lessor Allocation

A lessor shall allocate consideration in accordance with IFRS 15 Revenue from Contracts with Customers.

18

Lease Term

An entity shall determine the lease term as the non-cancellable period of a lease, together with both:

(a) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and

(b) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.

19

Certainty Assessment

In assessing whether a lessee is reasonably certain to exercise an option to extend or not to exercise an option to terminate, an entity shall consider all relevant facts and circumstances that create an economic incentive for the lessee.

20

Term Revision

A lessee shall reassess whether it is reasonably certain to exercise an extension option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant change in circumstances that is within the control of the lessee and affects reasonable certainty.

21

Revised Term

An entity shall revise the lease term if there is a change in the non-cancellable period of a lease.

22

Lessee Recognition

At the commencement date, a lessee shall recognise a right-of-use asset and a lease liability.

23

Initial Measurement

At the commencement date, a lessee shall measure the right-of-use asset at cost.

24

Cost Components

The cost of the right-of-use asset shall comprise:

(a) the amount of the initial measurement of the lease liability;

(b) any lease payments made at or before the commencement date, less any lease incentives received;

(c) any initial direct costs incurred by the lessee; and

(d) an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.

26

Liability Measurement

At the commencement date, a lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date. The lease payments shall be discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the lessee shall use the lessee's incremental borrowing rate.

27

Lease Payments

At the commencement date, the lease payments included in the measurement of the lease liability comprise the following payments for the right to use the underlying asset during the lease term that are not paid at the commencement date:

(a) fixed payments (including in-substance fixed payments), less any lease incentives receivable;

(b) variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

(c) amounts expected to be payable by the lessee under residual value guarantees;

(d) the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and

(e) payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.

29

Subsequent Measurement

After the commencement date, a lessee shall measure the right-of-use asset applying a cost model, unless it applies the measurement models described in paragraphs 34 and 35.

30

Cost Model

To apply the cost model, a lessee shall measure the right-of-use asset at cost:

(a) less any accumulated depreciation and any accumulated impairment losses; and

(b) adjusted for any remeasurement of the lease liability.

31

Depreciation

A lessee shall apply the depreciation requirements in IAS 16 Property, Plant and Equipment in depreciating the right-of-use asset.

32

Ownership Transfer

If the lease transfers ownership of the underlying asset to the lessee by the end of the lease term or if the cost of the right-of-use asset reflects that the lessee will exercise a purchase option, the lessee shall depreciate the right-of-use asset from the commencement date to the end of the useful life of the underlying asset. Otherwise, the lessee shall depreciate the right-of-use asset from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.

34

Other Models

If a lessee applies the fair value model in IAS 40 Investment Property to its investment property, the lessee shall also apply that fair value model to right-of-use assets that meet the definition of investment property.

35

Revaluation Model

If right-of-use assets relate to a class of property, plant and equipment to which the lessee applies the revaluation model in IAS 16, a lessee may elect to apply that revaluation model to all of the right-of-use assets that relate to that class.

36

Subsequent Liability

After the commencement date, a lessee shall measure the lease liability by:

(a) increasing the carrying amount to reflect interest on the lease liability;

(b) reducing the carrying amount to reflect the lease payments made; and

 (c) remeasuring the carrying amount to reflect any reassessment or lease modifications, or to reflect revised in-substance fixed lease payments.

39

Remeasurement

After the commencement date, a lessee shall apply paragraphs 40-43 to remeasure the lease liability to reflect changes to the lease payments. A lessee shall recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. However, if the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, a lessee shall recognise any remaining amount of the remeasurement in profit or loss.

44

Lease Modification

A lessee shall account for a lease modification as a separate lease if both:

       a)  the modification increases the scope of the lease by adding the right to use one or more underlying assets; and

        b) the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.

47

Presentation

A lessee shall either present in the statement of financial position, or disclose in the notes:

       a)  right-of-use assets separately from other assets; and

       b) lease liabilities separately from other liabilities.

53

Disclosure

The objective of the disclosures is for lessees to disclose information in the notes that, together with the information provided in the statement of financial position and statement of profit or loss, gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of the lessee.

61

Lessor Classification

A lessor shall classify each of its leases as either an operating lease or a finance lease.

62

Transfer of Risks

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset.

67

Finance Lease Recognition

At the commencement date, a lessor shall recognise assets held under a finance lease in its statement of financial position and present them as a receivable at an amount equal to the net investment in the lease.

81

Operating Lease Recognition

A lessor shall recognise lease payments from operating leases as income on a straight-line basis or another systematic basis.

98

Sale and Leaseback

If an entity (the seller-lessee) transfers an asset to another entity (the buyer-lessor) and leases that asset back from the buyer-lessor, both the seller-lessee and the buyer-lessor shall account for the transfer contract and the lease applying paragraphs 99-103.

99

Transfer Performance

An entity shall apply the requirements for determining when a performance obligation is satisfied in IFRS 15 Revenue from Contracts with Customers to determine whether the transfer of an asset is accounted for as a sale of that asset.

100

Transfer as Sale

If the transfer of an asset by the seller-lessee satisfies the requirements of IFRS 15 to be accounted for as a sale of the asset:

• the seller-lessee shall measure the right-of-use asset arising from the leaseback at the proportion of the previous carrying amount of the asset that relates to the right of use retained by the seller-lessee. Accordingly, the seller-lessee shall recognise only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor and,

• the buyer-lessor shall account for the purchase of the asset applying applicable Standards, and for the lease applying the lessor accounting requirements in this Standard.

Appendix A

Definitions

The following terms are defined in this Appendix:

• commencement date of the lease: The date on which a lessor makes an underlying asset available for use by a lessee.

• contract: An agreement between two or more parties that creates enforceable rights and obligations.

• gross investment in the lease: The sum of:

(a) the lease payments receivable by the lessor under a finance lease; and

(b) any unguaranteed residual value accruing to the lessor.

• interest rate implicit in the lease: The rate of interest that causes the present value of

(a) the lease payments and

(b) the unguaranteed residual value to equal the sum of

 (i) the fair value of the underlying asset and

 (ii) any initial direct costs of the lessor.

• lease: A contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration.

• lease term: The non-cancellable period for which a lessee has the right to use an underlying asset, together with both:

(a) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and

(b) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.

• lessee: An entity that obtains the right to use an underlying asset for a period of time in exchange for consideration.

• lessor: An entity that provides the right to use an underlying asset for a period of time in exchange for consideration.

• right-of-use asset: An asset that represents a lessee's right to use an underlying asset for the lease term.

• short-term lease: A lease that, at the commencement date, has a lease term of 12 months or less. A lease that contains a purchase option is not a short-term lease.

• underlying asset: An asset that is the subject of a lease, for which the right to use that asset has been provided by a lessor to a lessee.