IFRS 16 replaces IAS 17 and changes the accounting treatment of leases for lessees. It introduces a single lessee accounting model, requiring lessees to recognize assets and liabilities for leases over 12 months. For all applicable leases, lessees must recognize a right-of-use asset and a corresponding lease liability, initially measured at present value of unpaid lease payments. The new standard aims to provide a more faithful representation of leasing activities and improve comparability.

1. #TAG

2. 1. An overview of the provision of IFRS 16
2. Proposed changes from IAS 17
3. The need for change
4. The link between IAS 17 and IFRS 16

3. Overview of the provision of IFRS
16
• IFRS 16 was issued by IASB in January 2016 to replace IAS 17
Leases.
• The effective date of transition is 01 January 2019.
• It can applied before that date by entities that also apply IFRS
15 Revenue from Contract with Customers.

4. What will change ?
• 1. Definition
• 2. Accounting treatment
• 3. Recognition and measurement
• 4. Presentation and Disclosure
• 5. The need for change

5. IAS 17
• Is an agreement whereby the lessor conveys to the lessee in
return for a payment or series of payments the right to use an
asset for an agreed period of time.

6. IFRS 16
• Is a contract that conveys to the customer (lessee) the right to
use an asset for a period of time in exchange for
consideration.

8. ACCOUNTING TREATMENT
CLASSIFICATION
IFRS 16 IAS 17
It introduces a single lessee accounting
model eliminating the classification of
leases into either finance or operating
leases.
A lessor needs to classify its leases as
operating or finance leases based on the
extent of the risks and rewards of
ownership and account for them
differently.

9. Classification continue and link
between IAS 17 and IFRS 16
• Applying that model, a Lessee is required to recognise:
(a) Assets and liabilities for all leases > 12 months, unless the
underlying asset has a low value and
(b) Depreciation of lease assets separately from interest on
lease liabilities in the statement of comprehensive income
from the lessee.

10. 3. IFRS 16 Recognition
• At the commencement date, a lessee shall recognize a right –
of-use asset and a lease liability.

11. IFRS 16: Measurement (Initial)
Initial measurement of the
right-of-use asset.
• At the commencement
date, lessee shall measure
the right-of-use asset at
cost. Which include the
amount of the initial
measurement of lease
liability, as describe in
paragraph 26. Any lease
payments made at or
before the commencement
date, less any lease
incentives received
Initial measurement of lease
liability
• At the commencement date,
lessee shall measure the lease
liability at the present value
of the lease payments that
are not paid at that date. The
lease payment shall be
discounted using the interest
rate implicit in the lease, if
that rate can be readily
determine. If that rate can not
be readily determine, the
lessee shall use the lessee’s
incremental borrowing rate.

12. IFRS 16 Subsequent measurement
Subsequent measurement of the
right-of-use asset
• After the
commencement date, a
lesse shall measure the
right-of-use asset
applying a cost model,
unless its applies either
of the measurement
models described in
paragraph 34 and 35 .
Subsequent measurement of the
lease liability
• After commencement date, a
lessee shall measure the lease
liability by: increasing the
currying amount to reflect
interest on the lease liability.
Reducing the carrying amount
to reflect the lease payment
made and remeasuring the
carrying to reflect any
reassessment or lease
modifications specified in
paragraph 36-46 or reflect
revise in-sudstance fixed lease
payment, see paragraph B42.

13. Measurement model
Cost model
• To apply a cost model, a
lesse shall measure the
right-of-use asset at cost:
less any accumulated
depreciation and any
accumulated impairment
losses and adjusted for
any remeasurement of
the lease liability
specified in paragraph 36
Other model
• If a lessee applied the
fair value model in IAS 40
investment property to
it’s investment property,
the lessee shall also
apply that fair value
model to right-of-use
asset that meet the
definition of investment
property in IAS 40

14. 4. Presentation and
disclosure
• A lessee should either be presented in the statement of
financial position or disclosed in the notes. Right-of-use assets
are presented separately from other assets and so are lease
liabilities.
• Right-of-use assets should be presented under the same
category as similar assets owned by the entity and depriciated
accordingly based on their usufructory value

16. 4. Presentation and disclosure
continue
• The lessee should disclose lease liabilities in full, in the notes
to the statement of financial position lease liabilities that were
not presented in the statement of financial position

17. 4. Presentation and disclosure
continue
• Right-of-use over investment property does not have separate
requirements as lease liabilities.
• It will be disclosed & presented under investment property in
the investment property note, in the notes to the statement
of financial position

18. 4. Presentation and disclosure
continue
In the statement of profit or loss and comprehensive income: The
interest expense on the lease liability should be presented
separately from the depreciation charge for the right of use asset
and the interest expense on the lease liability is a component of
finance of finance cost which,
in accordance with paragraph 82 (b) of IAS 1 presentation of
financial statement of profit or loss and other comprehensive
income

19. 4. Presentation and disclosure
continue
• In the statement of Cash Flows, a lessee should classify: Cash
payments of the principal of the lease liability with Cash Flow
Financing Activities. Cash payments for the interest portion of
the lease liability applying the requirement in IAS 7 Statement
of Cash Flow for interest paid. Short-term lease payment for
of low-value assets and variable lease payment not included in
the measurement of the lease liability within Cash Flow from
operating activities

21. The need for change
• IAS 17 focused on identifying when a lease is economically
similar to purchasing the resource being leased (the
‘underlying asset’).
• the lease was classified as a finance lease when it was
determined to be economically similar to purchasing the
underlying asset.

22. The need for change
• operating leases were accounted for similarly to service
contracts, with the company reporting a rental expense in the
income statement.

23. link
• IFRS 16 was designed to substantially
carry forward the lessor’s requirements
of IAS 17.
• But it introduces a single lessee
accounting model which removes the
need for separate disclosure of leases
under two separate accounting systems.

24. Any Questions ?