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Chapter 7

2.4 Separating components

A contract may contain a lease component and a non-lease component.

Unless an entity chooses otherwise, IFRS 16 specifies that the consideration in the
contract should be allocated to each component based on standalone selling prices.

2.5 Reassessing the lease liability

If changes to lease payments occur then the lease liability must be recalculated and
its carrying amount adjusted.

A corresponding adjustment is posted against the carrying amount of the right-of-use
asset.

Illustrations and further practice

Now try TYU 5 from Chapter 7.

2.6 Short-life and low value assets

If the lease is short-term (less than 12 months at the inception date) or of a low value
then IFRS 16 permits a simplified treatment.

In these cases, the lessee can choose to recognise the lease payments in profit or
loss on a straight line basis. No lease liability or right-of-use asset would therefore be
recognised.

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