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Accounting For Leases and Specialized Assets

This document summarizes key accounting standards related to leases, agriculture, and mineral exploration. IFRS 16 outlines accounting for lessee and lessor leases. A lessee recognizes a right-of-use asset and lease liability initially at present value of payments. The liability is reduced by payments over time. IAS 41 addresses accounting for biological assets measured at fair value and agricultural produce at fair value less costs to sell. IFRS 6 provides guidance for exploration costs, requiring an accounting policy choice to expense or capitalize and outlines impairment testing and disclosure requirements.

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79 views16 pages

Accounting For Leases and Specialized Assets

This document summarizes key accounting standards related to leases, agriculture, and mineral exploration. IFRS 16 outlines accounting for lessee and lessor leases. A lessee recognizes a right-of-use asset and lease liability initially at present value of payments. The liability is reduced by payments over time. IAS 41 addresses accounting for biological assets measured at fair value and agricultural produce at fair value less costs to sell. IFRS 6 provides guidance for exploration costs, requiring an accounting policy choice to expense or capitalize and outlines impairment testing and disclosure requirements.

Uploaded by

Sajid Iqbal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MODULE 6

Accounting for leases and specialized assets


IFRS 16 - Leases

will learn
What you

IAS 41 – Agriculture

IFRS 6 – Exploration and evaluation of mineral resource


IFRS 16
Leases
IFRS 16

“A lease is a contract or part of a contract that conveys the right to control the use of an identified
asset for a period of time in exchange for consideration”.

Non-lease
components
Lessee Accounting

Lessee

Initial Subsequent
Measurement Measurement

Lease liability
Right to use of asset
Right to use of Opening balance
Lease liability =Cost
asset - Accumulated dep.
+ Liability for the year
- Lease payment
- impairment losses
= Closing balance

Present value of future


+ Initial lease liability lease payments
- lease incentives Discount rate = Implicit
+ Initial direct cost of lease rate
+ Dismantling costs
Lease term

Shorter of

Useful life of asset Lease term


Simplified
accounting

Lease term less than 12


Low value items
months
Shop Co enters into a 10 year lease on 1 January 20X5 in order to acquire a property from Building Co.

Details are as follows:

• Lease payments are €50,000 per annum payable in advance


• Shop Co incurs initial direct costs of €20,000, being €5,000 paid as commission to the property agent
that arranged the lease and €15,000 paid to the former tenant of the property
• As an incentive, Building Co agreed to reimburse Shop Co with the property agent's fees
• The interest rate implicit in the lease is 5% and the present value of the lease payments at 1 January
20X5 is €355,391.
Lessor
accounting

Operating
Finance Lease
lease

Remove asset Retain asset


Recognize receivable Recognize income = Straight line basis
Finance lease:

• Transfer of ownership of the asset by the end of the lease term

• The lessee has the option to purchase the asset at end of the lease term and pricing means this is

reasonably certain to be exercised

• The lease term is for the major part of the asset's useful life

• At the start of the lease the present value of minimum lease payments is substantially all of the fair value

of the asset

• The asset is so specialised that only the lessee can use it without major modification
Example

Roost Co leases plant and machinery to manufacturing companies. It has a year-end of 30 September. On 1

June 20X8 it leased a machine to a customer for a 6 year period. The agreed lease payments were $400 per

calendar month payable in arrears. In addition, the customer was required to pay an initial non-refundable

amount of $1,200.
Sale and lease
back

Is it a sale? Not a sale?

Proceeds are Proceeds are less Proceeds are more Keep recorded as asset
equal to FV than FV than FV + Financial liability

Derecognize asset
Prepayment of Addition financing
Gain or loss on
lease arrangement
disposal
IAS 41
Agriculture
IAS 41 -
Agriculture

Biological Agricultural
Bearer plants
assets produce

FVLCS IAS 16 FVLCS


IFRS 06
Exploration for and Evaluation of mineral resources
IFRS 6

IFRS 6

Develop policy for "Capitalization" Impairment test Disclosures

Policy
Relevant Reliable Frequently
Impact on financial statements

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