IFRS 16 - Leases

Classification: Internal.
 IFRS 16 - Leases

 The accounting treatment of leases:

 Recognition
 Measurement
 Presentation
 Disclosure

Classification: Internal.
 IFRS 16 - Leases

 There are two types of leases:

o Finance Lease – Leases period is more than 1 year

and lease value is greater than USD 5,000.
o Operating Lease – Lease period is less than 1 year
and lease value is less than USD 5,000.

Classification: Internal.
 IFRS 16 – Finance Leases
• “a lease contract conveys the right of the lessee to control the use of an
identifiable asset for a period of time in exchange for consideration”.

• The initial measurement of the liability is the net present value of the
future lease payments.

• Net present value of the liability is calculated by discounting the future

rentals.

• Discount rate to be used is the either the rate:

 Implicit in the lease contract – Mentioned in the lease contract
 Incremental borrowing rate - The rate of interest that a lessee would
have to pay to borrow over a similar term, and with a similar security,
the funds necessary to obtain an asset of a similar value to the right-
of-use asset in a similar economic environment.

Classification: Internal.
 IFRS 16 - Leases
Recognition
• Following formula is use to calculate the present value of lease liability

• Excel formula is

Classification: Internal.
 IFRS 16 - Leases

• Entries to be recorded at initial recognition:

o ROUA (Debit) 120,000
Lease Liability (Credit) 120,000

• Entries to be recorded at end of each period

o Finance expense (Debit) 5,000
Lease Liability (Credit) 5,000
o Depreciation ROUA (Debit) 9,000
Provision for Depreciation ROUA (Credit) 9,000
o Lease liability (Debit) 15,000
Bank/Prepayment (Credit) 15,000

Classification: Internal.
 THANK YOU!

Classification: Internal.