Page 417 - SBR Integrated Workbook STUDENT S18-J19

Answers

Example 2

Lessee accounting – initial treatment

IFRS 16 Leases says that the lease term includes non-cancellable periods,
plus periods covered by an option to extend the lease if reasonably certain to
be exercised. The lease term is therefore four years.

A lease liability should be recognised at the present value of the lease
payments. The discount rate used should be the rate implicit in the lease or, if
this cannot be readily determined, the lessee’s incremental borrowing rate.
The calculation of the liability is as follows:

Cash flows Discount Present value
$m factor $m
31/12/X1 1.0 1/1.1 0.91
31/12/X2 1.0 1/1.1 2 0.83
31/12/X3 1.0 1/1.1 3 0.75
31/12/X4 0.8 1/1.1 4 0.55
–––––
3.04
–––––
The lease liability should be recognised at $3.04 million.

The right of use asset should be recognised at the initial amount of the liability
plus any direct costs. Therefore, the right-of-use asset is recognised at $3.14
million ($3.04m + $0.1m).

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