Example: Lease accounting under IFRS 16

www.cpdbox.com
Learn the basic steps in lease accounting under IFRS 16 - both initial and subsequent measurement & recognition are covered.
------
*Online IFRS course by Silvia, CPDbox: www.cpdbox.com...
*Subscribe to Silvia's free newsletter: www.cpdbox.com/
#IFRS #IFRS16 #IFRSaccounting

[@CPDbox]

Thanks for watching! Let’s connect: *Newsletter: www.cpdbox.com/ *LinkedIn: www.linkedin.com/in/silviamahutova/ *Instagram: instagram.com/cpdbox/

[@AdityaAgrawal1988]

In 8:06 I understood accouting for Leases under IFRS 16. Hats off lady.

[@thembekilerafube7201]

You make IFRS and IAS so easy to follow.. You are truly an angel sent..Thank you for your hard work, Silvia.

[@shakeernizar2936]

well said

[@wangyingjun7297]

Great explaination! This is the first time that I take time to leave comments under a video. Your explaination is so fresh and practical. I like the way that you present it in excel format, with double entries and numerous embedded small tips on self-checking (like the IRR formula at the bottom etc). Great job and many thanks👍

[@CPDbox]

Oh thank you!

[@medzakaria2820]

Many thanks, i have always believed that a good simple example is 90% efficient to understand a complication

[@Prothomadaskotha]

Very Very clear as a visual Learner and thanks for present the excel formula.

[@gracechen4976]

Concise，straight to the point，easy to understand. Thanks.

[@ahm9246]

I love all information regarding IAS & IFRS from Silvia published on IFRSbox.

[@zofianewton3877]

Massive thank you for this, it has really helped me to understand requirements of IFRS16!

[@shiraniliyanage3974]

Very useful and easy to understand the way you present. Chank you

[@thekylem1]

What a great video! Its great that you showed the formulas and covered the JE at each step. Glad that you kept the example simple and were not temped by scope creep making a 30 min video.

[@kuttychuttiboys5042]

Crisp and precise examples

[@milenarossow4209]

Hi Silvia, your video is so good. Thank you!

[@peggychia8558]

Thank you so much for this step by step guide!!!

[@ayoubayoub8984]

Hello Do you have an example with an answer to the subject of the lease? @Peggy chia

[@srinivasp8653]

Brilliant way of explanation. Thanks a lot madam

[@transmath]

Nice job !! off course depending of your business it could be more complex depedning of the terms of your leases and parameters. But great example to quickly understand this standard !

[@robertocabrera1905]

A copy of lease rental of the house

[@raghuramc1536]

wow ! what a detailed explanation .

[@CPDbox]

Glad it helped!

[@izzatdanish5079]

awesome may god bless you and all you do in the world and after world

[@bedayaforconsultancy-eslam8997]

Excellent ... I like your extreme way if explanation.

[@lokeshreddy522]

Hi Silvia, Please post a video for remesurement of asset in on IFRS 16

[@Flutterbyby]

Thanks 😊 very clear as a visual Learner and thanks for showing the excel formula builder!

[@chandrakantamandal6484]

Thank you for the easy explanation🙂

[@punchi7612]

thank you for making the video, very clear!

[@neveenhamdy4933]

please make an example about change in lease term and how to account for variable lease payments

[@oksanabundzyak199]

This is the best explanation video so far! Can you please post a video on how to come up with IBR?

[@chandrashekharshahane4989]

Simple and Superb. You have Good Presentation quality

[@solomonratnam23]

Very clear & nicely explained. Many thanks

[@arpita14v]

very nicely explained :)

[@carlosrodrigo9133]

well i would like to understand if and how its depreciation is recognized , seeming that in the video theres no show of depreciation of the lease

[@daoconsetre]

so great video, nice voice with clear explaination, tks so much

[@prasancma]

On commencement of lease Right of Use is debited and Lease liability is credited. End of year 1 lease liability is reduced to the extent of Principal repaid and by so end of year 4 lease liability would become zero. How to close the Right of Use account, since we have used only Accumulated Depreciation account? Will there be an additional entry Debiting Accumulated Depreciation and crediting Right of Use at end of year 1?

[@CPDbox]

Yes, once you no longer have ROU under control, then derecognize it Dr Accum Dep Cr ROU.

[@happygwenzi5181]

Thank you so much Silvia

[@paulmchugh9927]

Hi. I want to know what would happen if the lease is indefinite (lease period). The lesser and lessor intend and are contractually obligated to an indefinite lease. How would you calculate the lease asset and lease liability. Thanks

[@sisiraweerabahu7475]

Nicely explained great work .Thanks

[@allennassali3724]

This is so helpful. thank you Sylvia

[@user-kx7ch2ye9z]

Best greeting from egypt

[@ayangaming9128]

Good Work...Well Explained

[@royshin4365]

thank you. i will pass my exam tomorrow

[@dubaikoti007]

very good and easy to understand

[@1prcnter]

Do you ever pay your lease with cash? Or do you always use security interest? If the 2nd.. I wonder why people struggle to afford rent if we have security interest

[@jnadler6586]

Thank you! Very clear explanation

[@lmentza]

very helpful!

[@jituca47]

Wonderful Example

[@sethponce4335]

Amazing video!

[@VilleHyytiainenInvesting]

How is this showing in cash flow statement? Payment of lease liability in financing cash flows and interest in operating cash flow?

[@joviestera710]

Hi Silvia, Excellent presentation for IFRS 16 -Lease Accounting (ROU). Hope you could share more video for depth understanding about IFRS 16. Thank you!

[@brovik23]

Shouldn't the first journal entry at the end of year 1 include also a debit of the Interest payable account equal to the Interest expense on the P&L? Otherwise, the Balance Sheet won't be balanced out, right? -110 000 Cash (asset) vs. -94 028 Lease liability.

[@CPDbox]

It does. The first entry is Debit Lease liability 94 028, Debit Interest expense in PL 15 972, Credit Cash out 100 000. You can firstly accrue interest expense via some payable account, but here I did not, I simply accounted it against cash paid.

[@fnader1000]

Hi Silvia ، there is one case not mention if there is accrual due to not paid on time how it will be reflected here

[@tharakasandaruwan3376]

Good one. Tks

[@zubairusman2544]

Great video no doubt about it

[@AyCarumba1000]

Thank you.

[@endarnovianto11]

Thank you Silvia

[@naruti3992]

1:38 what to do with maintain cost in right to use asset

[@cuonghung8322]

Hi! very useful video thank you! anyone can answer my question, why there is interest expenses there in ifrs 16? thanks!

[@gkay17]

Hi Silvia, thank you for the video. Do you also have a video for calculating the restatement in the end of the year?

[@SrbinIlijaIV]

Dear Silvia, could you tell me, what should we do in case of lease of premises (which are recognised as operating lease). Is the logic the same we recognise it as an asset and depreciate it through periods?

[@plankalicious]

Hi Silvia, per IFRS 16 it mentions that that the policy is applied for "contracts (I presume this is the lease agreement) entered into, or changed, on or after 1 January 2019". So say for instance I have a 3 year lease agreement starting 1 June 2018 (before the IFRS 16 policy came into effect) until 31 May 2021, would this mean that I can follow IFRS 17 or would I need to move to IFRS 16? As my contract date was before 1 January 2019?

[@dawagyem1804]

Could you please share some criticism of leasing??

[@sharvishah25]

Simple and effective

[@mowafakali]

Thanks Silvia

[@ayoubayoub8984]

Hello Do you have an example with an answer to the subject of the lease?

[@checkHook93]

So in year 1 we would normally debit 110,000 for rent expense which hits P/L. So now interest expense debit of 15,972 hits P/L and depreciation debit of 99,822 hits P/L. So in year 1 there is a difference of 5,794 that does not hit P/L?

[@ozzythepolar]

Thank you for this very helpful example Silvia. Could you also please let us know how should we clean up the debit balance of 399k€ in "Right-of-use-asset" at the period end. If you can share a full video with all journal bookings till end of period ; we will owe you big time :)

[@benjaminogle11]

the accumulated depreciation GL is a contra asset account. her final entry is cleaning up the debit balance. you would only directly credit the asset is you were to write off the asset.

[@jayeshmehta111]

how to account for Profit entities with Peppercorn Leases?

[@praveenkumar-tf2hm]

Hi Silvia... thank for you lecture... Any lecture uploaded on intercompany leases

[@MsMdsaleem]

Thank you so much

[@katekanoksinghasomboon3310]

Iove this video

[@accountingin5mins838]

Very helpful

[@pappas9696]

Thanks, great help !

[@abbaspsrd]

Good, very comprehensive

[@mohmmadabdeen]

Hi Could you please feedback about the following case: We have lease contact with 5 years We are on 3rd year and the owner gives discount SR 500,000(half year) what the right accounting treatment for this discount?

[@nompilomange62]

Hi Silvia, can you please explain what happen to the right of use when the incremental borrowing rate changes constantly.

[@alyam6217]

Hello, I’m new to this and I have a question. Assume I pay rent every 3 month for the period, example I pay in January for Jan-Mar. Previously, in January I would expense Jan portion and Feb and march will go to prepaid rent, Now under IFRS 16, I will have to reduce my lease liability and expense interest every month. My question what do I do will the rent I paid for Feb and march? should it still go to prepaid rent? or shall I reduce my lease liability and expense interest for 3 months in January?

[@tsedeniaassefa1223]

Thank you!

[@muhamadsopiyan1699]

Thanks so much Silvia, I want asking how calculate PV for variable amount of payment ex 1st year CU 100, 2nd year CU 150, 3rd year CU 200?

[@CPDbox]

The easiest way is to put them in the table in excel and calculate internal rate of return using IRR formula.

[@amysubash9396]

Under what circumstances would a company prepare financial statement under US GAAP as well as IFRS for the same year?

[@mohsin92786]

Dear Silvia, what if we have 3 year lease of building & we pay them quarterly in advance. Would we unwind the finance cost each quarter or each year? As we will have annual incremental borrowing rate/ risk free rate available. Appreciate your guidance.

[@zanelembatha1873]

Hi can you please help me how to operate calculator

[@cajatinaswani609]

Do IFRS 16 don't classify lease between operating & financial lease

[@waliedmahmoud275]

Thanks

[@aysaralqaisy1889]

Amazing example thanks a lot 🌺🌺🌺 can you please give us an example for more than one year

[@cindylove7529]

Super!!!

[@aneeshkaz1528]

Super

[@MCLARENracerful]

Silvia, how would the formula change if the payments were made at the beginning of the year instead of ending?

[@amjadalichandio3361]

use annuity formula just by adding 1st payment (original)at 1st day with remaining discounted payment( present value of future payment). you just discounting all leasepayments except 1st payment then add with 1st payment to get ur ans..

[@franogho1]

4

[@samuelkwesiowusu4142]

Hello sylvia, how does the treatment in change in cases where the leases are in foreign currency. thank you

[@munshimuktadir3646]

Please at least write down her name correct.

[@ashebirdemissie4916]

Hi silvia it is best presentation, where do i get the pdf version of your papers?

[@CPDbox]

Lots of materials are on our web www.cpdbox.com

[@user-qw6qg7uy1x]

V.good

[@AyCarumba1000]

What is meant by no classification of leases? For lessor?

[@CPDbox]

For lessee. They treat all the leases the same way, with 2 exceptions.

[@AyCarumba1000]

@@CPDbox ok yes. So no classification in under 1 year and under 5k. For everything else ROU asset and liability , right?

[@mohitpatodi1665]

U missed out Deferred Tax ?? U have to book deferred tax also

[@CPDbox]

Sure, in real life yes. For all other viewers of this video: I should have booked deferred tax, but I ignored it for the sake of simplicity.

[@mohitpatodi1665]

@@CPDbox Ma'am ur video is awesome I all time refer and all I have downloaded yr each videos

[@gjlim88]

hi silvia, what if the item is in foreign currency?

[@lisa-wx1vj]

Anyone can help me on the below: Our company ( eg.Co. A) lease trucks to our related companies( eg. Co. B and Co. C). The lease term is 3 years. There is no fixed rental charged to Co.B and Co. C. Co. A bill Co.B and Co.C rental only when Co. B and Co. C managed to find customers to use the trucks. Shall Co.B and Co.C adopte IFRS 16 to record the lease as Right to use? Many thanks

[@LlamaQueen_78]

From the reading of the scenario and absence of additional information, it appears difficult to establish fulfilment of one of the principle condition relating to right of use of asset which is asset should be identifiable. It is not when supplier has right to substitute the asset and right is substantive. The following conditions together are indicative of substantive substitution rights: the supplier has the practical ability to substitute an asset at any point during the contract (for example, by the customer not being able to prevent the supplier from substituting the asset and the supplier having alternative assets that are readily available); andthe supplier would benefit economically from the exercise of the substitution rights (for example, by the costs of substituting the asset not exceeding the economic benefits associated with substitution). It needs to be seen whether company A is required to provide specific trucks or it can supply any out of its fleet. The next question is regarding right to direct use of asset. Supply of trucks to Co b &c on demand and need basis would suggest that trucks are mostly used by Co A and hence direct their use and utilise their economic life for gaining economic benefits. So in my opinion, may be not correct, you should charge this payment as hiring expense instead of treating it as lease under IFRS 16.

[@arnoldzulu5754]

@@LlamaQueen_78 there is no transfer of asset at the end of the lease term to B and C .IFRS 16 can not apply

[@griffybillions9936]

@@arnoldzulu5754 it does as operating lease

[@quiyumjewel8286]

Helpful

[@shohagimam4114]

Hi Silvia, Thanks for your endless effort for helping us explaining the all IAS/IFRS. Is office rent fall under IFRS 16 Lease for tenant, if there is a rental agreement between building owner and tenant for 5 years.

[@ghufranbhutta9164]

Shohag Imam! Yes if agreement exceeds 12 months it is considered finance lease under IFRS 16

[@WorsOom]

Do you have a link where we can download these slides?

[@neemamfungo9507]

helpfull

[@kartoffelkamera3442]

saving my ass for the exam which is in 2 days 😆

[@blender123123]

❤✌️✌️

[@ravingagunawardana178]

[@onghausong7937]

...

[@vanlethituong4445]

I want to know what depreciation if payment advance, ROU = LL + Payment, depreciation = ROU or LL / useful life 🥹🥹