Page 107 - FR Integrated Workbook 2018-19

Leases

2.2 Subsequent measurement: liability

The liability is increased by the interest charge, which is also recorded in the
statement of profit or loss:

Dr Finance costs (SPL) X

Cr Lease liability X

Cash payments reduce the lease liability:

Dr Lease liability X

Cr Cash X

2.3 Subsequent measurement: right-of-use asset

Unless another model is chosen, the cost model is used. The asset will be measured
at cost less accumulated depreciation and impairment losses.

The asset is depreciated:

 if ownership transfer to the lessee at the end of the lease, over the remaining
useful economic life of the asset

 if ownership does not transfer to the lessee at the end of the lease, over the
shorter of the lease term and the useful economic life of the asset

2.4 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 a simplified treatment is allowed.

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.

2.5 Statement of financial position presentation

The lease liability is split on the statement of financial position between its current
and non-current elements. The easiest way to do this is to calculate the non-current
element, with the current element calculated as the balancing figure.

The non-current element is calculated by calculating the liability remaining
immediately after next year’s lease payment. This principle may be applied
whether the lease payments are in advance or arrears.

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