📖 Overview
This standard requires lessees to recognize nearly all leases on the balance sheet as a right-of-use asset and a lease liability. Exceptions exist for short-term leases (12 months or less) and low-value leases. Lessor accounting remains similar to IAS 17, classifying leases as finance or operating.
🎯 Scope
This standard applies to the accounting treatment for leases from the perspective of lessees and lessors, except:
- Leases of natural resources (oil, gas, mining).
- Leases of biological assets.
- Service contracts that do not transfer control of the asset.
- Leases of intangible assets.
⚙️ Key Principles
1. **Identifying a Lease**: A contract that conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
2. **Lessee - Single Model**:
- Recognizes a **Right-of-Use Asset**.
- Recognizes a **Lease Liability**.
- Exceptions: Short-term leases (12 months or less), low-value leases.
3. **Lessor**: Retains lease classification:
- **Finance Lease**: Transfers substantially all risks and rewards.
- **Operating Lease**: Does not transfer substantially all risks and rewards.
📏 Measurement
**Lease Liability:**
- Measured at the present value of future lease payments.
- Lease payments include: fixed payments, variable payments linked to an index, expected purchase price, termination penalties.
- Discount rate: Interest rate implicit in the lease, or lessee's incremental borrowing rate.
**Right-of-Use Asset:**
- Measured at the lease liability amount + advance payments + initial direct costs + estimated removal costs.
- Depreciated over the useful life or lease term, whichever is shorter.
✅ Recognition
The right-of-use asset and lease liability are recognized at the commencement date of the lease.
Depreciation expense on the right-of-use asset is recognized each period.
Interest expense on the lease liability is recognized each period.
No asset or liability is recognized for short-term or low-value leases (expensed directly).
📊 Presentation
**On the Statement of Financial Position (Lessee):**
- **Right-of-Use Asset**: Appears within fixed assets or as a separate line item.
- **Lease Liability**: Appears as current (portion due within one year) and non-current liabilities.
**On the Income Statement (Lessee):**
- Depreciation expense on right-of-use asset.
- Interest expense on lease liability.
**Lessor:**
- **Finance Lease**: Derecognize the asset, recognize a receivable.
- **Operating Lease**: Asset remains, recognize lease income.
📝 Disclosure Requirements
Disclosures required:
- Nature of lease contracts.
- Expiry dates of lease contracts.
- Extension or termination options.
- **For Lessee**: Accumulated depreciation, lease liability movement, interest expense, total cash outflows.
- **For Lessor**: Income reconciliation, net investment in finance leases, operating lease disclosure requirements.
- Short-term and low-value leases (amount of expense recognized).
🔗 Related Standards
IAS 16 (Property, Plant and Equipment), IAS 36 (Impairment of Assets), IFRS 7 (Disclosures)