Lessor Accounting & Exam Strategy
While the lessee model changed drastically, lessor accounting remains largely unchanged from IAS 17. Let's wrap up our IFRS 16 journey.
1Lessor Classification
Unlike lessees, lessors must still classify a lease as either Finance or Operating.
Finance Lease
A lease that transfers substantially all the risks and rewards incidental to ownership.
Operating Lease
All other leases that do not transfer risks and rewards.
2Is it Finance or Operating?
Primary Indicators of a Finance Lease:
- Ownership transfers to lessee at end of term.
- Lessee has a 'bargain' purchase option.
- Lease term is for the major part of the asset's economic life.
- PV of lease payments is substantially all of the asset's fair value.
- Asset is of a specialized nature (only lessee can use it).
3The IFRS 16 Exam Roadmap
Lease questions are long and calculation-heavy. Follow this order to stay organized and pick up all the marks.
Define the Lease & Term
What is the identified asset? What is the non-cancellable period plus extension options?
Determine the Discount Rate
Quote the rule for Implicit Rate vs IBR. Always search for the implicit rate first.
Initial Measurement (The Day 1 Box)
Show your workings for the PV of the liability and the bundle of costs that make up the ROU asset.
Subsequent Amortization & Depreciation
Prepare an amortization table. It makes calculating interest and carrying amounts foolproof.
Coming soon: full guides with detailed worked examples and solutions. Keep an eye on this page.