IFRS 16: Leases
Effective January 1, 2019, IFRS 16 eliminated the distinction between operating and finance leases for lessees, bringing virtually all leases onto the balance sheet.
Core Recognition Principle
A lessee recognizes a right-of-use (ROU) asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.
| Component | Initial Measurement | Subsequent Measurement |
|---|---|---|
| Lease Liability | PV of future lease payments discounted using IBR | Amortized cost using effective interest method |
| ROU Asset | Lease liability + initial direct costs - lease incentives | Cost less accumulated depreciation and impairment |
IFRS 16 ROU Asset Calculator
Calculate initial lease liability.
PV: $772,173.49
Common Mistakes
- Using the wrong incremental borrowing rate (IBR).
- Ignoring lease extension options that are "reasonably certain" to be exercised.
- Failing to separate non-lease components (like maintenance) from the lease payment.
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