Assurance and advisory firm Nkonki will be hosting a roundtable session exclusively for CFOs with Darrel Scott, Board Member of the IFRS Foundation. Scott, who is in Johannesburg for the occasion, will provide global and industry insights on the newly-released IFRS 16, issued on 13 January 2016, to CFOs from many of South Africa’s leading companies.
“The session is designed to share insights and deliberate on how this new accounting standard will impact processes and financial reporting, and how industries across the globe will deal with this change,” says Sindi Zilwa, CEO of Nkonki. It will also provide an update on accounting developments in the medium term.
The International Accounting Standards Board (IASB) issued IFRS 16 Leases in January 2016. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, namely, the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 is effective from 1 January 2019. IFRS 16 completes the IASB’s project to improve the financial reporting of leases. IFRS 16 replaces the previous leases Standard, IAS 17 Leases, and related Interpretations.
Assurance and advisory firm Nkonki will be hosting a roundtable session exclusively for CFOs with Darrel Scott, Board Member of the IFRS Foundation. Scott, who is in Johannesburg for the occasion, will provide global and industry insights on the newly-released IFRS 16, issued on 13 January 2016, to CFOs from many of South Africa’s leading companies.
“The session is designed to share insights and deliberate on how this new accounting standard will impact processes and financial reporting, and how industries across the globe will deal with this change,” says Sindi Zilwa, CEO of Nkonki. It will also provide an update on accounting developments in the medium term.
The International Accounting Standards Board (IASB) issued IFRS 16 Leases in January 2016. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, namely, the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 is effective from 1 January 2019. IFRS 16 completes the IASB’s project to improve the financial reporting of leases. IFRS 16 replaces the previous leases Standard, IAS 17 Leases, and related Interpretations.
IFRS 15 Revenue from contracts with customers Nadir Malik
IFRS 15 Revenue from contracts with customers
Overview of new Standard
Back ground of revenue recognition standard
5 step Model
Contract Cost
Specific guidance
Transition
Presentation and Disclosure
Impacts, challenges and issues
Q&A discussion
Summary of Ind AS 28 for the students and who are new to Ind AS. They can make a basic understanding about the words, definition, terms, provisions used in the actual Ind AS 28.
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IFRS 15 Revenue from contracts with customers Nadir Malik
IFRS 15 Revenue from contracts with customers
Overview of new Standard
Back ground of revenue recognition standard
5 step Model
Contract Cost
Specific guidance
Transition
Presentation and Disclosure
Impacts, challenges and issues
Q&A discussion
Summary of Ind AS 28 for the students and who are new to Ind AS. They can make a basic understanding about the words, definition, terms, provisions used in the actual Ind AS 28.
The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be referred to the ICAPreferred to the ICAPreferred to the ICAPreferred to the ICAP referred to the ICAP referred to the ICAPreferred to the ICAP referred to the ICAP
CA Varun Sethi - ICAI IFRS training - IAS 17 & IAS 23 - Oct 2015Varun Sethi
Presentation by CA Varun Sethi at ICAI certificate course on IFRS/ IndAS - 2015
Covered
IAS 17/ IndAS 17 / IFRIC 4 - Leases and Embedded Leases
IAS 23/ IndAS 23 - Borrowing costs
Contains
1. Comparison with ICDS, AS, IAS
2. Updates from IASB - New standard on leases
3. Industry/ sector relevant practical questions, problems and solutions including first time adoption issues etc
Contains the India/ US/ IFRS financial reporting framework for various sectors/ entities for Lease transactions and borrowing costs.
CA Varun Sethi - ICAI IFRS training - IAS 17 & IAS 23 - Oct 2015Varun Sethi
Presentation by CA Varun Sethi at ICAI certificate course on IFRS/ IndAS - 2015
Covered
IAS 17/ IndAS 17 / IFRIC 4 - Leases and Embedded Leases
IAS 23/ IndAS 23 - Borrowing costs
Contains
1. Comparison with ICDS, AS, IAS
2. Updates from IASB - New standard on leases
3. Industry/ sector relevant practical questions, problems and solutions including first time adoption issues etc
Contains the India/ US/ IFRS financial reporting framework for various sectors/ entities for Lease transactions and borrowing costs.
CA Varun Sethi - ICAI IFRS training - IAS 17 & IAS 23 - Oct 2015Varun Sethi
Presentation by CA Varun Sethi at ICAI certificate course on IFRS/ IndAS - 2015
Covered
IAS 17/ IndAS 17 / IFRIC 4 - Leases and Embedded Leases
IAS 23/ IndAS 23 - Borrowing costs
Contains
1. Comparison with ICDS, AS, IAS
2. Updates from IASB - New standard on leases
3. Industry/ sector relevant practical questions, problems and solutions including first time adoption issues etc
Contains the India/ US/ IFRS financial reporting framework for various sectors/ entities for Lease transactions and borrowing costs.
Lease Accounting: Preparing Your Business for 2022Citrin Cooperman
Making a smooth transition to the new lease accounting standards and putting new practices in place for the future is a top priority for any business as they plan for 2022. During this webinar session, we reviewed how you can handle and prepare to navigate your business through the new lease accounting standards.
Topics included:
- What private companies should think about for 2022
- How the lease accounting standards can impact your financial
statements, financial covenants, and taxes
- Identifying opportunities for your business due to the new lease
accounting standards
McKonly & Asbury’s April webinar entitled, “Leasing: A New Standard is Finally Here” is hosted by Dan Sturm, Partner; Brett Bauer, Senior Manager; and Tim Showers, Supervisor. During this webinar, attendees will learn how ASC 842 differs from ASC 840; will see illustrative financial statements which highlight exactly what changes as a result of the new standard; and will gain an understanding of what they should be doing now to prepare.
Accounting and Financial Reporting – Current Developments .docxnettletondevon
Accounting and Financial Reporting – Current Developments
156
I. Changes Coming To Lease Accounting
The FASB's lease accounting project has nine lives and has survived two exposure drafts while
headed toward final passage. As of early 2015, the FASB is putting the finishing touches on a
new lease standard that, when passed, will make dramatic changes to the way companies
account for lease transactions. In particular, most leases will be capitalized, resulting in billions
of dollars of assets and liabilities being recorded on company balance sheets.
Although the lease accounting project has gone through numerous changes, the fundamental
concept that leases be capitalized is not going to change in the final document.
In this section, the author discusses the general concepts that are included in the most recent
lease exposure draft, with modifications that have been proposed by the FASB through their
ongoing deliberations.
Background
Under current GAAP, ASC 840, Leases (formerly FASB No. 13), divides leases into two
categories: operating and capital leases. Capital leases are capitalized while operating leases
are not. In order for a lease to qualify as a capital lease, one of four criteria must be met:
1. The present value of the minimum lease payments must equal or exceed 90% or more of
the fair value of the asset.
2. The lease term must be at least 75% of the remaining useful life of the leased asset.
3. There is a bargain purchase at the end of the lease.
4. There is a transfer of ownership.
In practice, it is common for lessees to structure leases to ensure they do not qualify as capital
leases, thereby removing both the leased asset and obligation from the lessee’s balance sheet.
This approach is typically used by restaurants, retailers, and other multiple-store facilities.
Consider the following example:
Facts:
Lease 1: The present value of minimum lease payments is 89% and the lease term is 74% of
the remaining useful life of the asset.
Lease 2: The present value of minimum lease payments is 90% or the lease term is 75% of the
remaining useful life of the asset.
Accounting and Financial Reporting – Current Developments
157
Conclusion: There is a one percent difference between Lease 1 and Lease 2. Lease 1 is an
operating lease not capitalized, while Lease 2 is a capital lease under which both the asset and
lease obligation are capitalized.
SEC pushes toward changes in lease accounting
In its report entitled Report and Recommendations Pursuant to Section 401(c.) of the
Sarbanes-Oxley Act of 2002 On Arrangements with Off-Balance Sheet Implications, Special
Purpose Entities, and Transparency of Filings by Issuer, the SEC targeted lease accounting as
one of the areas that results in significant liabilities being off-balance sheet.
According to the SEC Report that focused on U.S. public companies and a U.S. Chamber of
Commerce report:
a. 63 .
A brief introduction on International Accounting Standard (IAS - 17) named as Leasing, within the introduction disclosure requirements are described.
The second part covers the application of IAS - 17 on Financial Statements of Kohinoor Company Ltd.
Personal Brand Statement:
As an Army veteran dedicated to lifelong learning, I bring a disciplined, strategic mindset to my pursuits. I am constantly expanding my knowledge to innovate and lead effectively. My journey is driven by a commitment to excellence, and to make a meaningful impact in the world.
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
Recruiting in the Digital Age: A Social Media MasterclassLuanWise
In this masterclass, presented at the Global HR Summit on 5th June 2024, Luan Wise explored the essential features of social media platforms that support talent acquisition, including LinkedIn, Facebook, Instagram, X (formerly Twitter) and TikTok.
"𝑩𝑬𝑮𝑼𝑵 𝑾𝑰𝑻𝑯 𝑻𝑱 𝑰𝑺 𝑯𝑨𝑳𝑭 𝑫𝑶𝑵𝑬"
𝐓𝐉 𝐂𝐨𝐦𝐬 (𝐓𝐉 𝐂𝐨𝐦𝐦𝐮𝐧𝐢𝐜𝐚𝐭𝐢𝐨𝐧𝐬) is a professional event agency that includes experts in the event-organizing market in Vietnam, Korea, and ASEAN countries. We provide unlimited types of events from Music concerts, Fan meetings, and Culture festivals to Corporate events, Internal company events, Golf tournaments, MICE events, and Exhibitions.
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➢ Korean President visits Samsung Electronics R&D Center
➢ Vietnam Food Expo with Lotte Wellfood
"𝐄𝐯𝐞𝐫𝐲 𝐞𝐯𝐞𝐧𝐭 𝐢𝐬 𝐚 𝐬𝐭𝐨𝐫𝐲, 𝐚 𝐬𝐩𝐞𝐜𝐢𝐚𝐥 𝐣𝐨𝐮𝐫𝐧𝐞𝐲. 𝐖𝐞 𝐚𝐥𝐰𝐚𝐲𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞 𝐭𝐡𝐚𝐭 𝐬𝐡𝐨𝐫𝐭𝐥𝐲 𝐲𝐨𝐮 𝐰𝐢𝐥𝐥 𝐛𝐞 𝐚 𝐩𝐚𝐫𝐭 𝐨𝐟 𝐨𝐮𝐫 𝐬𝐭𝐨𝐫𝐢𝐞𝐬."
An introduction to the cryptocurrency investment platform Binance Savings.Any kyc Account
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A personal brand exploration presentation summarizes an individual's unique qualities and goals, covering strengths, values, passions, and target audience. It helps individuals understand what makes them stand out, their desired image, and how they aim to achieve it.
Company Valuation webinar series - Tuesday, 4 June 2024FelixPerez547899
This session provided an update as to the latest valuation data in the UK and then delved into a discussion on the upcoming election and the impacts on valuation. We finished, as always with a Q&A
LA HUG - Video Testimonials with Chynna Morgan - June 2024Lital Barkan
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Exploring Patterns of Connection with Social Dreaming
IFRS 16 working paper
1. IFRS 16 for a Lessee
Measuring and accounting for a lease agreement
1
Antonello Dessanti
dessanti@live.com
2. IFRS 16 in brief
IFRS 16 is a new standard that replaces IAS 17, IFRIC 4, SIC-15 and SIC-27
IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019.
Earlier application is permitted for entities that apply IFRS 15 Revenue from Contracts with
Customers at or before the date of initial application of this Standard.
Significant changes are applicable for a lessee, namely the measurement and recognition of
the right of use (asset) and the lease obligations (liability).
Recognition exemptions are available for short-term leases and leases for which the
underlying asset is of low value (paragraphs 5 – 8).
A lease of an underlying asset does not qualify as a lease of a low-value asset if the nature
of the asset is such that, when new, the asset is typically not of low value. For example,
leases of cars would not qualify as leases of low-value assets because a new car would
typically not be of low value (paragraph B.6).
The exemptions have to be adopted by the reporting entity, individually or for by class of
underlying asset to which the right of use relates.
2
3. IAS 17 vs. IFRS 16
IAS 17
IAS 17 required an assessment to
determine whether the lease is an
operating or a finance lease.
No recognition in the balance sheet for
the operating leases.
Future commitments of operating
leases(undiscounted) are disclosed in the
financial statements for future
commitments.
Lease installments are recognized in the
income statement within the operating
expenses and classified in the statement
of cash flows as cash used for operating
activities.
IFRS 16
The right of use and of the lease
obligation are recognized at the
commencement date of the lease
agreement.
Depreciation charge of the right of use
and interest expenses of the lease
obligation are recognized in the income
statement.
Lease installments reduce the lease
obligations and are classified in the
statement of cash flows as cash used for
financing activities (lease components)
and as cash used for operating activities
(non-lease components).
3
4. Effect analysis IFRS 16
On January 2016, IASB estimated that the present value of lease
payments for 1,145 worldwide IFRS reporting entities will increase the total
assets by US$1.83 Trillion.
On February 2016, a PWC study based on 3,199 worldwide IFRS reporting
entities (excluding United States) estimated an increase in debt by 25%.
Industries likely to experience most significant impact on financial ratios
are Retail, Airlines, Professional Services, Health Care, Textile & Apparels,
and Wholesale.
Median increase in debt: 22%
Median increase in EBITDA: 13%
Median increase in leverage ratio (debt / EBITDA): 2.03 – 2.14
4
5. Impact on financial statements5
Balance Sheet Example
Total assets Increase 3-years lease with a present value of $60,000
Net assets Decrease
Working capital Decrease Balance Sheet
Asset turnover ratio Decrease IAS 17 IFRS 16
Gearing ratio Increase Current assets $45,000 $45,000
Income Statement Fixed assets $15,000 $75,000
EBITDA Increase Total assets $60,000 $120,000
EBIT Increase Current liabilities $30,000 $50,000
Interest coverage ratio Decrease Long-term liabilities $10,000 $50,000
EPS (*) Decrease Total liabilities $40,000 $100,000
Net income (*) Decrease Net assets $20,000 $20,000
Statement of cash flows
Cash used for operating activities Decrease Working capital $15,000 -$5,000
Cash used for financing activities Increase Working capital ratio 1.5 0.9
Debt $10,000 $50,000
(*) Higher costs during the early years of the Debt to Equity 0.5 2.5
lease
6. Definition of a lease
The guidance for determining whether an agreement contains a lease is based
on who does control the use of the asset
At inception of a contract, an entity shall assess whether the contract is, or
contains, a lease. A contract is, or contains, a lease if the contract conveys the
right to control the use of an identified asset for a period of time in exchange for
consideration (paragraph 9).
The asset must be identified (paragraphs B13.B20).
Controls occurs directing the use and obtaining the benefits from the use:
Customer controls the use of the asset = Lease agreement
Supplier controls the use of the asset = Service agreement
Refer to IASB “IFRS 16 Illustrative examples” issued in January 2016 for more
guidance on determining whether an agreement contains a lease.
6
7. Key judgements, exemptions and policy choices
Judgements IFRS 16 ref.
Identifying a lease based on the definition of a lease Para 9.12
B9-B33
Determining whether it is reasonably certain that an extension or a termination option will
be exercised
Para 18
B34-41
Identifying the appropriate rate to discount the lease payments Para 26
Exemptions
Short-term leases (by class of asset) or low value asset leases (lease by lease basis) Para 5.8
B3-B8
Policy choices
Applying IFRS 16 to a portfolio of similar leases B1
Separation of non-lease components from lease components by class of assets Para 15
Applying IFRS to leases of intangible assets Para 4
Transition choice (full retrospective or cumulative catch-up) C5-C13
7
8. Case study: renting a retail space
This case study is for renting a retail space with three different types of
modifications.
The lease agreement is for 1,500 sq. feet with a term of 10 years and no
option to renew.
The annual lease is $20 per sq. foot (net rent) and $2.0 per sq. foot for
common area maintenance (CAM) costs. The lease installments will increase
annually by 2% (consumer price index).
The reporting entity determined that net rent is a lease component and CAM
costs are non-lease components. The increase for inflation adjustment is
included in the measurement of the lease liability.
The gross annual rental cost in the 1st year is $33,000, of which $30,000 are
for lease components and $3,000 for non-lease components.
There is no interest rate implicit in the lease and the lessee's incremental
borrowing rate is 5% per annum at commencement date.
8
9. Initial measurement and accounting
Year
Lease
components
Non-lease
components
Annual
Payments
1 $30,000.00 $3,000.00 $33,000.00
2 $30,600.00 $3,060.00 $33,660.00
3 $31,212.00 $3,121.20 $34,333.20
4 $31,836.24 $3,183.62 $35,019.86
5 $32,472.96 $3,247.30 $35,720.26
6 $33,122.42 $3,312.24 $36,434.67
7 $33,784.87 $3,378.49 $37,163.36
8 $34,460.57 $3,446.06 $37,906.63
9 $35,149.78 $3,514.98 $38,664.76
10 $35,852.78 $3,585.28 $39,438.05
Year Commitment Present Value
1 30,000.00$ 28,571.43$
2 30,600.00$ 27,755.10$
3 31,212.00$ 26,962.10$
4 31,836.24$ 26,191.75$
5 32,472.96$ 25,443.42$
6 33,122.42$ 24,716.46$
7 33,784.87$ 24,010.28$
8 34,460.57$ 23,324.27$
9 35,149.78$ 22,657.86$
10 35,852.78$ 22,010.50$
Lease liability 251,643.17$
Initial measurement
Debit Right of use (ROI) asset 251,643.17$
Credit Current portion lease obligation 30,000.00$
Credit Long-term lease obligation 221,643.17$
Journal entries Year 1
Debit Depreciation ROI 25,164.32$
Credit Accumulated depr. ROI 25,164.32$
Debit Interest expense 12,582.16$
Credit Long-term lease obligation 12,582.16$
Debit Current portion lease obligation 30,000.00$
Debit Operating expenses $3,000.00
Credit Cash 33,000.00$
Debit Long-term lease obligation 30,600.00$
Credit Current portion lease obligation 30,600.00$
Initial recognition right of use and lease
obligation within and over twelve
months
Straight line method depreciation over
10 years
Accretion expense lease obligation
Recording the lease payment in year 1,
including CAM costs
Amount due within twelve months
Carry forward balances at the end of Year 3
Lease liability
Beginning
Balance
Interest
Expense
Lease
Payments
Ending
Balance
1 251,643.17$ 12,582.16$ 30,000.00$ 234,225.33$
2 234,225.33$ 11,711.27$ 30,600.00$ 215,336.59$
3 215,336.59$ 10,766.83$ 31,212.00$ 194,891.42$
Right of Use
Beginning
Balance
Depreciation
Ending
Balance
1 251,643.17$ 25,164.32$ 226,478.85$
2 226,478.85$ 25,164.32$ 201,314.54$
3 201,314.54$ 25,164.32$ 176,150.22$
9
10. Modifications
There are three possible accounting treatments, each presented in the
following slides:
Is the modification in substance a separate new lease (e.g. renting more
space)? If yes, then account for as a separate new lease by adding the
right of use of one or more underlying assets and measure the
modification like any other new lease.
Does the modification decrease the scope of the lease (e.g. less floor
space or a shorter lease term with commensurate change in payments)?
If yes, then decrease the pre-modification right of use asset and the pre-
modification lease liability and recognize any gain or loss in the income
statement.
Does the modification decrease the scope of the lease (e.g. increase in
lease term) without a commensurate change in payments? If yes, adjust
the right of use and the lease liability with a measurement of the
discounted liability using a revised interest rate.
10
11. Accounting for a modification (1)
The lessor and the lessee agree to modify the lease for the retail space at the end of the 3rd year, increasing
the floor space from 1,500 to 2,000 sq. feet at $21 per sq. ft., $2.1 per sq. ft. for CAM costs and all other
terms and conditions unchanged. The additional space is in substance a new lease with a separate
measurement and accounting.
The lessee's incremental borrowing rate is 6% per annum.
Initial measurement new lease
Debit Right of use (ROI) asset 61,965.34$
Credit Current portion lease obligation 10,500.00$
Credit Long-term lease obligation 51,465.34$
Journal entries Year 4new lease
Debit Depreciation ROI 6,196.53$
Credit Accumulated depr. ROI 6,196.53$
Debit Interest expense 3,717.92$
Credit Long-term lease obligation 3,717.92$
Debit Current portion lease obligation 10,500.00$
Debit Operating expenses $1,050.00
Credit Cash 11,550.00$
Debit Long-term lease obligation 10,710.00$
Credit Current portion lease obligation 10,710.00$
Initial recognition right of use and lease
obligation within and over twelve
months
Straight line method depreciation over 7
years
Accretion expense new lease obligation
Recording the new lease payment in year
4, including CAM costs
Amount due within twelve months
Year
Lease
components
Non-lease
components
Annual
Payments
4 $10,500.00 $1,050.00 $11,550.00
5 $10,710.00 $1,071.00 $11,781.00
6 $10,924.20 $1,092.42 $12,016.62
7 $11,142.68 $1,114.27 $12,256.95
8 $11,365.54 $1,136.55 $12,502.09
9 $11,592.85 $1,159.28 $12,752.13
10 $11,824.71 $1,182.47 $13,007.18
Year Commitment Present Value
1 10,500.00$ 9,905.66$
2 10,710.00$ 9,531.86$
3 10,924.20$ 9,172.17$
4 11,142.68$ 8,826.05$
5 11,365.54$ 8,492.99$
6 11,592.85$ 8,172.50$
7 11,824.71$ 7,864.10$
Lease liability 61,965.34$
11
12. Accounting for a modification (2)
The lessor and the lessee agree to modify the lease for the retail space at the end of the 3rd year, reducing
the floor space from 1,500 to 1,000 sq. feet and maintaining all other terms and conditions unchanged.
Lessee determines the proportionate decrease in the carrying amount of the right-of-use asset and in the
carrying amount of the lease liability on the basis of the remaining right-of-use asset.
The difference between the decrease in the lease liability and the decrease in the right-of-use asset is a
gain in profit or loss at the effective date of the modification.
Subsequent measurement
Debit Curr.port. lease obligation 10,612.08$
Debit Lease obligation 43,739.65$
Credit Right of use 46,222.60$
Credit Gain from lease termination 8,129.13$
Journal entries Year 4
Debit Depreciation ROI 18,561.09$
Credit Accumulated depr. ROI 18,561.09$
Debit Interest expense 6,496.38$
Credit Long-term lease obligation 6,496.38$
Debit Current portion lease obligation 21,224.16$
Debit Operating expenses $2,122.42
Credit Cash 23,346.58$
Debit Long-term lease obligation 21,648.64$
Credit Current portion lease obligation 21,648.64$
Reduction of lease obligation and right
of use and recognition gain for the
difference
Straight line method depreciation over 7
years for revised right of use
Accretion expense on revised lease
obligation
Recording the lease payment in year 4,
including adjusted CAM costs
Amount due within twelve months
12
13. Accounting for a modification (3)
At the beginning of the 3rd year, the Lessee and the Lessor agree to amend the original lease by extending
the contractual lease term by 5 years.
The annual lease payments are unchanged and the Lessee’s incremental borrowing rate at the beginning
of the 4th year is 6% per annum.
The modification is accounted for with an adjustment to the right of use and to the lease liability with a
discounted liability using the interest rate at modification date.
Year Commitment Present Value
1 31,836.24$ 30,320.23$
2 32,472.96$ 29,453.94$
3 33,122.42$ 28,612.40$
4 33,784.87$ 27,794.90$
5 34,460.57$ 27,000.76$
6 35,149.78$ 26,229.31$
7 35,852.78$ 25,479.90$
8 36,569.83$ 24,751.90$
9 37,301.23$ 24,044.70$
10 38,047.25$ 23,357.71$
11 38,808.20$ 22,690.35$
12 39,584.36$ 22,042.05$
Lease liability 311,778.15$
Subsequent measurement
Debit Right of use (ROI) asset 116,886.73$
Credit Long-term lease obligation 116,886.73$
Journal entries Year 4
Debit Depreciation ROI 25,981.51$
Credit Accumulated depr. ROI 25,981.51$
Debit Interest expense 15,588.91$
Credit Long-term lease obligation 15,588.91$
Debit Current portion lease obligation $31,836.24
Debit Operating expenses $3,183.62
Credit Cash 35,019.86$
Debit Long-term lease obligation 32,472.96$
Credit Current portion lease obligation 32,472.96$
Recognition of the modified term of the
lease with an increase in right of use and
in lease obligation
Straight line method depreciation over
12 years
Accretion expense revised lease
obligation
Recording the lease payment in year 4,
including CAM costs
Amount due within twelve months
13
14. Transition to IFRS 16: Option 1 Retrospective
Restate comparatives as if IFRS 16 always applied.
The lease liability is calculated on the commencement date of the lease as the present value of the
future rentals discounted using the interest rate implicit in the lease or otherwise the lessee's
incremental borrowing rate applicable at the commencement date of the lease.
The restatement for the reporting entity in case study at the end of the 3rd year is as follows:
Year 1 Year 2
Debit Right of use $251,643.17 Debit Depreciation right of use $25,164.32
Credit Curr.Port. Lease obligation $30,000.00 Credit Acc. Depr. Right of use $25,164.32
Credit Lease obligation $221,643.17 Debit Interest expenses $11,711.27
Debit Depreciation right of use $25,164.32 Credit Lease obligation $11,711.27
Credit Acc. Depr. Right of use $25,164.32 Credit Operating expenses (reversal) $33,660.00
Debit Interest expenses $12,582.16 Debit Operating expenses $3,060.00
Credit Lease obligation $12,582.16 Debit Curr. Port. Lease obligation $30,600.00
Credit Operating expenses (reversal) $33,000.00
Debit Operating expenses $3,000.00 Effect in net income before taxes -$6,275.58
Debit Curr.Port. Lease obligation $30,000.00
Year 3
Effect in net income before taxes -$7,746.48 Debit Depreciation right of use $25,164.32
Credit Acc. Depr. Right of use $25,164.32
Debit Interest expenses $10,766.83
Credit Lease obligation $10,766.83
Credit Operating expenses (reversal) $34,333.20
Debit Operating expenses $3,121.20
Debit Curr. Port. Lease obligation $31,212.00
Effect in net income before taxes -$4,719.15
14
15. Transition to IFRS 16: Option 2 Cumulative Catch-up
Comparatives remain as previously reported.
Any difference between asset and liability is recognized in the opening retained earnings at
transition date.
Calculate the outstanding liability for existing operating leases using the incremental borrowing
rate at the date of transition if interest rate implicit in the lease is not available.
Measure the asset as if IFRS 16 had been applied from lease commencement OR
Measure the asset at amount equal to liability (adjusted for accruals and prepayments).
The restatement for the reporting entity in case study at the end of the 3rd year, with a
measurement at commencement date and using the interest rate at commencement date, and
the carry forward of the asset measured as if IFRS 16 was applied from lease commencement is
a follows:
Year 4 Opening Balances
Debit Right of use $176,150.22
Debit Retained earnings $18,741.21
Credit Curr.Port. Lease obligation $31,836.24
Credit Lease obligation $163,055.18
15
16. How to adopt IFRS 16 (1)
Understanding IFRS 16
a) reviewing IFRS 16-related information from IASB and other externally prepared
websites
b) discussing the implications with industry peers
c) considering additional education and training for this topic;
Reviewing
a) processes, systems, data collection and internal controls to develop a
comprehensive project management process
b) identifying the required but not available data and developing a plan to obtain
such information
c) creating a database of all lease contracts including a summary of key
contractual provisions
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17. How to adopt IFRS 16 (2)
Assessing the effect of IFRS 16
a) in systems, lease accounting policies, disclosures, internal controls, and discuss any potential
issue and change with the auditors
b) making a decision on the method to be applied on transition
c) preparing pro-forma financial statements to illustrate the effect of adopting IFRS 16
d) determining (if any) the implications for contractual arrangements (e.g. compensation,
acquisition, lending)
e) modifying (if necessary) covenants and third party agreements
f) determining whether additional training is required;
Implementing IFRS 16
a) reflecting the adoption in accounting policies, systems and internal controls
b) updating budgets and forecast for the effects of IFRS 16; and
Communicating the effects of IFRS 16
a) with the board of directors and the audit committee
b) developing a communication plan for all stakeholders (e.g. lenders and investors) including
disclosure in the MD&A.
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18. Educational materials
http://www.ifrs.org/Current-Projects/IASB-
Projects/Leases/Documents/IFRS_16_project-summary.pdf IASB January 2016
http://www.ey.com/Publication/vwLUAssets/ey-leases-a-summary-of-ifrs-16-and-
its-effects-may-2016/$FILE/ey-leases-a-summary-of-ifrs-16-and-its-effects-may-
2016.pdf E&Y May 2016
https://www.slideshare.net/kpmg/ifrs-16-leases-a-more-transparent-balance-sheet-
56984678 KPMG January 2016
http://www.ifrs.org/Current-Projects/IASB-Projects/leases-
implementation/Documents/IFRS-16-Modifications-Webcast.pdf IASB March 2017
http://efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FProjec
t%20Documents%2F269%2FIFRS%2016%20Leases_Illustrative%20Examples.pd
f IASB January 2016
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