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The new leases standard, MFRS 16: Leases provides guidance on how to account for variable lease payments in a lease agreement. For accounting by lessees, MFRS 16 categorises variable lease payments into two categories, i.e. those that depend on an index or a rate; and those that do not depend on an index or a rate.
2.2.2 Lease payments IFRS 16.27 A lessee includes the following payments relating to the use of the underlying asset in the measurement of the lease liability: – fixed payments (including in-substance fixed payments), less any lease incentives receivable; – variable lease payments that depend on an index or a rate;
IFRS 16. Contents. Determining the lease liability. At a glance 2. 1.1 Key facts 2. 1.2 Key impacts 3. 2 Lease payments 4. 2.1 What does a lessee include in its lease liability? 4. 2.1.1 Categories of lease payment 5. 2.1.2 Residual value guarantees 5.
Variable lease payments that depend on an index or a rate described in paragraph 27(b) include, for example, payments linked to a consumer price index, payments linked to a benchmark interest rate (such as LIBOR) or payments that vary to reflect changes in market rental rates.
IFRS 16 requires separate presentation of the interest expense on the lease liability and the depreciation charge for the right-of-use asset in the lessee’s statement of profit or loss and other comprehensive income.
We have been releasing our in-depth application guidance on IFRS 16 Leases in manageable chunks, one chapter at a time. Each one focuses on a particular aspect and includes explanations of the requirements and examples showing them in practice, to help you apply the new standard.
applying IFRS 16. Identifying a lease (paragraphs 9–11 and B9–B30) The following examples illustrate how an entity determines whether a contract is, or contains, a lease. Example 1—Rail cars. Example 1A: a contract between Customer and a freight carrier (Supplier) provides Customer with the use of 10 rail cars of a particular type for ...
