IFRS - 16 -IMPACT STUDY ON LEASED RETAIL STORE

1. CA Tapan Kumar Pradhan
J T R ACCOUNTING & BOOKKEEING
IFRS 16 – Standard on Leases

2.  IFRS 16 is effective for annual reporting periods
beginning on or after 1 January 2019
 IFRS 16 introduces a single lessee accounting model and
requires a lessee to recognise assets and liabilities for all
leases with a term of more than 12 months, unless the
underlying asset is of low value. A lessee is required to
recognise a right-of-use asset representing its right to use
the underlying leased asset and a lease liability representing
its obligation to make lease payments.
About IFRS 16
CA Tapan Kumar Pradhan
J T R ACCOUNTING & BOOKKEEING

3.  A lessee measures right-of-use assets similarly to other non-
financial assets (such as property, plant and equipment) and
lease liabilities similarly to other financial liabilities. As a
consequence, a lessee recognises depreciation of the right-of-
use asset and interest on the lease liability. The depreciation
would usually be on a straight-line basis. In the statement of
cash flows, a lessee separates the total amount of cash paid
into principal (presented within financing activities) and
interest (presented within either operating or financing
activities) in accordance with IAS 7
 Assets and liabilities arising from a lease are initially
measured on a present value basis. The initial lease
asset equals the lease liability in most cases.
How to comply
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4. Impact on Lessees
CA Tapan Kumar Pradhan
J T R ACCOUNTING & BOOKKEEING

5. Computation of Lease Liability & Lease Asset – A Location
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LeaseTerm Openingbalance Interest Payment ClosingBalance Amortization LeaseExpenses Assest
T0 7,209,985 - - 7,209,985 7,209,985
T1 7,209,985 414,574 1,700,000 5,924,559 1,441,997 1,856,571 5,767,988
T2 5,924,559 340,662 1,700,000 4,565,221 1,441,997 1,782,659 4,325,991
T3 4,565,221 262,500 1,700,000 3,127,721 1,441,997 1,704,497 2,883,994
T4 3,127,721 179,844 1,700,000 1,607,565 1,441,997 1,621,841 1,441,997
T5 1,607,565 92,435 1,700,000 0- 1,441,997 1,534,432 -
Lesseesfacemajorchanges 1,290,015 8,500,000 7,209,985 8,500,000
LeaseTerm 5 Years
Rent 1,700,000 PerAnnum
DiscountRate 5.75%

6. NVP Computation – A Location
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Mathematical formula for calculating the present value of an individual cash flow
NPV= F / [ (1 + i)^n ]
PV= Present Value
F = Future payment (cash flow)
i = Discount rate (or interest rate)
n = the number of periods in the future the cash flow is
^ = It's used to represent exponentiation. So 2^2 means 22.
1 2 3 4 5 NPV
AfterTaxCashFlow 1,700,000 1,700,000 1,700,000 1,700,000 1,700,000 8,500,000
PresentValue 1,607,565 1,520,156 1,437,500 1,359,338 1,285,426 7,209,985
InterestRate 5.75%
Yearsof lease term

7. Journal entries
All the parties were issued subpoenas by the regulatory authorities
J T R ACCOUNTING & BOOKKEEING
Sl.No. 1stJanuary2019 Debit Credit
1 ROU assets 7,209,985
Lease Liability 7,209,985
31stDecember2019
2 Depreciation 1,441,997
ROU assets 1,441,997
3 InterestExpenses 414,574
Lease Liability 1,285,426
Cash 1,700,000

8. Balance Sheet - A Location
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Balance sheet under
current IAS 17
Assets - - - - -
Liabilities - - - - -
Balance sheet under
IFRS 16
Right of use asset 7,209,985 5,767,988 4,325,991 2,883,994 1,441,997 -
Lease liability 7,209,985 5,924,559 4,565,221 3,127,721 1,607,565 - 0
Net equity - -156,571 -239,230 -243,727 -165,568 0
Inception Year 1 Year 2 Year 3 Year 4 Year 5

9. Income Statement – A Location
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Year1 Year2 Year3 Year4 Year5
Income statement underIAS 17
Operating lease expense 1,700,000 1,700,000 1,700,000 1,700,000 1,700,000
Income statement underIFRS 16
Amortization expense 1,441,997 1,441,997 1,441,997 1,441,997 1,441,997
Interest expense 414,574 340,662 262,500 179,844 92,435
Totalexpense 1,856,571 1,782,659 1,704,497 1,621,841 1,534,432

10. Cash Flow Statement – A Location
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Year 1 Year 2 Year 3 Year 4 Year 5
Cash flows as per IAS 17
Operating cash flows -1,700,000 -1,700,000 -1,700,000 -1,700,000 -1,700,000
Cash flows under IFRS 16
Cash flow from financing
activities
-1,285,426 -1,359,338 -1,437,500 -1,520,156 -1,607,565
Cash flow from
financing/operating
-414,574 -340,662 -262,500 -179,844 -92,435
Total cash outflow -1,700,000 -1,700,000 -1,700,000 -1,700,000 -1,700,000

11. Thank You !
CA Tapan Kumar Pradhan
+971 544527948
J T R ACCOUNTING & BOOKKEEPING