IFRS 16: Leases is effective from the FY starting 1 Jan 2019. It is going to have a significant impact on leased asset intensive companies, specifically in Air Line, Shipping & Logistic, Power & Utilities, Retail, Retail Banking Companies. Here is a broad presentation on the impact of IFRS 16 Leases. If anyone needs the excel working please comment with email ID

1. IFRS 16:Leases – Impact
This presentation does not explain about IFRS 16. It explains the impact on financial statements and financial KPIs if
IFRS 16 applied.
Prepared by: Suresh Swain

2. Leases: Accounting Treatment (for Lessee)
IFRS 9 Leases: Applicable from the Financial Year
starting from 1 January 2019.
Balance Sheet
ROU Assets: to recognize all
significant leased assets.
Leased Liability: Present Value
of the lease obligations are
recognized.
Profit & Loss
Lease Expense: Depreciation +
Interest
(Front Loaded total lease
expense)
Cash Flow
No Change in cash flows.
However, as the liability will be
increased, the default risk
assessment by the lender may
increase, and hence the
increase in interest rate.

3. Leases Accounting - Illustration
Lease Period (Year) 10
Lease rental (Per Annuam) 100,000
Discount Rate 8%
Year
Lease Liability at
the beginning of
the year Interest Lease Payment
Lease Liability at
the end of the year
ROU Asset - at
the beginning
of the year Depreciation
ROU Asset - at the
end of the year
Discount
Factor
Present Value
of Lease
Payments
0 671,008 - - 671,008 671,008 0 671,008
1 671,008 53,681 100,000 624,689 671,008 67,101 603,907 0.9259 92,593
2 624,689 49,975 100,000 574,664 603,907 67,101 536,807 0.8573 85,734
3 574,664 45,973 100,000 520,637 536,807 67,101 469,706 0.7938 79,383
4 520,637 41,651 100,000 462,288 469,706 67,101 402,605 0.7350 73,503
5 462,288 36,983 100,000 399,271 402,605 67,101 335,504 0.6806 68,058
6 399,271 31,942 100,000 331,213 335,504 67,101 268,403 0.6302 63,017
7 331,213 26,497 100,000 257,710 268,403 67,101 201,302 0.5835 58,349
8 257,710 20,617 100,000 178,326 201,302 67,101 134,202 0.5403 54,027
9 178,326 14,266 100,000 92,593 134,202 67,101 67,101 0.5002 50,025
10 92,593 7,407 100,000 (0) 67,101 67,101 - 0.4632 46,319
671,008

4. Leases - P&L Impact
Interest is more during the initial years, gradually decreasing year by year and hence negative net profit impact is more in initial years and decreasing
gradually year by year. Total lease expense (Depreciation+Interest) is more in initial years an gradually decreasing year by year.
53,681 49,975 45,973 41,651 36,983 31,942 26,497 20,617
14,266
7,407
67,101 67,101 67,101 67,101 67,101 67,101 67,101 67,101 67,101 67,101
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Lease Expense – IFRS 16 Depreciation
Interest Rental
Expense
under IAS
17
P&L Under IAS 17 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Operating Lease Expense 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000
P&L Under IFRS 16 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Depreciation - ROU Asset 67,101 67,101 67,101 67,101 67,101 67,101 67,101 67,101 67,101 67,101
Interest 53,681 49,975 45,973 41,651 36,983 31,942 26,497 20,617 14,266 7,407
120,781 117,076 113,074 108,752 104,084 99,042 93,598 87,718 81,367 74,508

5. Leases– Balance Sheet Impact
(200,000)
(100,000)
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ROU Asset - at the end of
the year
Lease Laibility at the end of
the year
Net Assets
Balance Sheet Under IAS 17 Inception Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Asset - - - - - - - - - - -
Liability - - - - - - - - - - -
Net Asset/(Liability) - - - - - - - - - - -
Balance Sheet Under IFRS 16 Inception Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ROU Asset 671,008 603,907 536,807 469,706 402,605 335,504 268,403 201,302 134,202 67,101 -
Lease Liability 671,008 624,689 574,664 520,637 462,288 399,271 331,213 257,710 178,326 92,593 (0)
Net Asset/(Liability) - (20,781) (37,857) (50,931) (59,683) (63,767) (62,809) (56,407) (44,125) (25,492) 0
• Companies
with leases
will appear
to be more
asset-rich
but also
heavily
indebted.
• Net asset
at the
inception
and lease
end period
will be zero
on account
of lease.

6. Leases – Cash Flow Impact
Cash Flow Under IAS 17 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Operating Cash Flows (100,000) (100,000) (100,000) (100,000) (100,000) (100,000) (100,000) (100,000) (100,000) (100,000)
Cash Flow Under IFRS 16 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Cash Flows from Financing/Operating
Activities (53,681) (49,975) (45,973) (41,651) (36,983) (31,942) (26,497) (20,617) (14,266) (7,407)
Cash Flows from Financing Activities (46,319) (50,025) (54,027) (58,349) (63,017) (68,058) (73,503) (79,383) (85,734) (92,593)
(100,000) (100,000) (100,000) (100,000) (100,000) (100,000) (100,000) (100,000) (100,000) (100,000)
• No Net Impact on Cash Flows.
• Cash Flows from Operating activities will be more
and compensated with Cash flows from Financing
activities.
• Lease Asset Centric Companies will be heavily
indebted .
• Default spread by Lenders will be more due to
heavy indebt-ness (default risk), consequently
high Interest rate.

7. Leases – Financial KPI Impact
Activity Ratio Numerator Denominator Impact
Fixed Assets
Turnover
Revenue Average Net Fixed
Assets
Total Assets
Turnover
Revenue Average Total assets
Solvency Ratio Numerator Denominator Impact
Debt-to-Capital
Ratio
Total debt Total Debt+Total
Equity
Debt-to-Equity
Ratio
Total debt Total Equity
Financial
Leverage Ratio
Average Total
Assets
Average Total Equity
Interest
Coverage Ratio
EBIT Interest Payment
Valuation
Ratio
Numerator Denominator Impact
EPS Net Earnings No of Shares
P/E Ratio Price per
share
Annual Earning
per share
Solvency
Ratio
Numerator Denominator Impact
Operating
Profit
(EBITDA)
Margin
Operating
Profit
Revenue
Net Profit
Margin
Net Profit Revenue
ROE Net Profit Average Equity

8. Leases – Industry Impact
Air Line
Shipping
& Logistic
Power &
Utilities
Banks Retail School