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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;
Definition of a lease. The definition of a lease in ASC 842 is “a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.”.
Assessing whether an arrangement is, or contains, a lease will be one of the biggest practical issues when applying IFRS 16 Leases. Lease definition is the new test that determines whether an arrangement is on- or off-balance sheet for a customer.
The lease payments are 10,000 per annum, paid at the end of each year. Because the annual lease payments are fixed amounts, B includes the present value of the five annual payments in the initial measurement of the lease liability.
Such leases should be classified as a direct finance lease by the lessor and as an operating lease by the lessee. See LG 3 for information on the dual model under US GAAP.
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.
The new Leases Standard will contain a definition of a lease and accompanying guidance to help entities assess whether a contract is (or contains) a lease. The definition and accompanying guidance will apply to both parties to a contract, ie the customer (lessee) and the supplier (lessor).
