A247 : IFRS 16/ FRS 116 Leases: A Deeper Dive into the New Rules & Avoid the Pitfalls

Introduction

Assets and liabilities arising from finance leases have historically been reported on the balance sheet, while the rights and obligation of operating leases are off the balance sheet.

The new approach to lease accounting, often referred to as the “Right-Of-Use” model differs substantially from the current standard.

Effective January 2019, the new Standard prescribed a ‘single lessee model’ that require lessee to recognise lease assets, arising from the contractual rights to use the resources for a specified period of time, and the corresponding obligation to pay for that rights as lease liabilities on the balance sheet.

The new requirements will inevitably impose a new reporting burden and have significant impact on an entity’s financial position, financial performance, gearing and capital ratios, cash flow.
 
Programme Objective

This seminar presents a comprehensive analysis of the technical requirements of the IFRS 16/ FRS 116 for Lease Accounting. It provides a detailed understanding of the changes from current Standards to the New Standard, analysing the logic, implications and problem areas to watch out for.

The seminar will enable you to assess the impact of the New Standard on the business decision to make arrangement to acquire the rights to use  resources and the impact of the contractual terms that may have significant impact on the reported financial position, financial performance and cash flows of your company.

Discover the best ways to handle the new rules and avoid the pitfalls. Learn what you need to do NOW to prepare for the new changes.

Programme Outline
The Overall Technical Issues

• New Principles

  • Scope of coverage and interaction with other Standards

  • Identifying a lease contract

  • Identifying and accounting for short-term lease and low value lease

  • Separating components of a lease contract for lessee and lessor

  • Handling complex lease terms and understanding their impact on financial statements

  • Introduction to the new principles on sale and leaseback transactions

 
Accounting for Lessee

• Recognition principles

  • When to recognise a “lease liability” and a “right-of-use asset”

• Measurement principles for initial and subsequent accounting

  • Lease obligations and right-of-use assets

  • Reassessment of lease liability

  • Amortization and impairment of the right-of-use assets

• Presentation and disclosure of lease liabilities and right-of-use assets

• Practical illustrations on setting up the ledger accounts

• Examine the impact on financial statements and ratios analysis

• Transitional provisions for lessee

 
Accounting for Lessor

• Determining whether a lease is a finance lease or an operating lease

• Finance Lease

  • Recognising and measuring the lease receivable assets

  • Initial measurement of the amount of net investment in lease

  • Subsequent recognition of finance income over the lease term

  • Presentation and disclosure of lease receivable assets

• Operating lease

  • How to recognise the income of an operating lease

  • Recogniton and measurement of the underlying assets

  • Depreciation or amortisation of the underlying assets

  • Presentation and disclosure of the underlying assets subject to operating lease

 
Special Consideration for Granting a Lease of Property

• Lessee

  • How to classify and account for right-of-use property

  • Lessee granting a sub-lease of the right-of-use property

• Lessor

  • Granting a head-lease lease of property

  • Granting a sub-lease of property

• Classification consideration for both Lessee and Lessor:

  • Whether to classify in accordance with IAS 40 Investment Property or IAS 16 Property, Plant and Equipment

 
Sale and Lease Back Transactions for Both Seller-Lessee and Buyer-Lessor

• Deciding whether a transfer of asset is a sale (Application of SB-FRS115 Revenue from contracts with customers)

• Accounting treatments for both seller-lessee and buyer-lessor for:

  • Transfer of an asset that is a sale

    • Accounting treatment where fair value sale consideration does not equal to fair value of the assets

  • Transfer of asset that is not a sale

 
Transitional provision

• Transition and disclosure requirements for lessee