4. Lessee accounting

A lessee enters into a five-year lease of a building which has a remaining useful life of ten years. Lease payments are $50,000 per annum, payable at the beginning of each year. The lessee incurs initial direct costs of $3,000 and receives lease incentives of $5,000. There is no transfer of the asset at the end of the lease and no purchase option. The interest rate implicit in the lease is not immediately determinable but the lessee’s incremental borrowing rate is 5%.At the commencement date the lessee pays the initial $50,000, incurs the direct costs and receives the lease incentives.

Initial measurement of ROU Asset :

Annual depreciation for ROU asset = 225,297 / 5 = 45,059.4

The above case can be revised: lease payment of $50,000 per annum is payable at the end of each year.

Initial measurement of ROU Asset :

Annual depreciation for RoU asset = 214,473 / 5 = 42,894.6

4.5 Remeasurement

The lease liability is remeasured (if necessary) for any reassessment of amounts payable.

The revised lease payments are discounted using the original discount interest rate where the change relates to an expected payment on a residual value guarantee or payments linked to an index or rate (and a revised discount rate where there is a change in lease term, purchase option or payments linked to a floating interest rate)

Lassie leased an item of equipment on the following terms:

The present value of lease payments not paid at 1 January 20X1 was $690,000. The price to purchase the asset outright would have been $1,200,000. Inflation measured by the Consumer Price Index (CPI) for the year ending 31 December 20X1 was 2%. As a result the lease payments commencing 1 January 20X2 rose to $204,000. The present value of lease payments for the remaining 4 years of the lease becomes approximately $747,300 using the original discount rate of 6.2%.

Required: Discuss how Lassie pic should account for the lease and remeasurement in the year ended 31 December 20X1.

Answer: On the commencement date, Lassie recognises a lease liability of $690,000 for the present value of lease payments not paid at the 1 January 20X1. A right-of-use asset of $890,000 is recognised comprising the amount initially recognised as the lease liability $690,000 plus $200,000 payment made on the commencement date.

The right-of-use asset is depreciated over 5 years. Its carrying amount at 31 December 20X1 (before adjustment for reassessment of the lease liability is $712,000 ($890,000 - ($890,000 / 5)).

The carrying amount of the lease liability at the end of the first year (before reassessment of the lease liability) is $732,780 (working). On that date, the future lease payments are revised by 2%. The lease liability is therefore revised to $747,300.

The difference of $14,520 adjusts the carrying amount of the right-of-use asset, increasing it to $726,520. This will be depreciated over the remaining useful life of the asset of 4 years from 20X2.

Working: Lease liability

關于“低值”租賃，關注以下幾點:

(1) A lessee shall assess the value of an underlying asset based on the value of the asset when it is new, regardless of the age of the asset being leased. (評估時應基于該資產(chǎn)全新時的價值，且不考慮已使用年限）

(2)The assessment of whether an underlying asset is of low value is performed on an absolute basis. It is not a question of materiality. The assessment is not affected by the size, nature or circumstances of the lessee （只考慮“絕對值”，不考慮重要性，即，標的資產(chǎn)是否為低值，不同承租人應得出相同結論）

(3)If a lessee sublease an asset, or expects to sublease an asset, the head lease does not qualify as a lease of a low-value asset.

4.7 Influence on financial ratio

While IFRS 16 has benefits for the users of financial statements in terms of transparency and comparability, it has had a significant impact on the most commonly used financial ratios, such as:

? Gearing, because debt has increased

? Asset turnover decrease

? Profit margin ratios, because rent expenses are removed and replaced with depreciation and finance costs.