BLM17040 - Lease accounting under IFRS 16 and FRS 102 (2024 amendments): subsequent measurement and accounts disclosure

This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.

Right-of-use asset subsequent measurement (IFRS 16. 29 – 35; FRS 102 (2024 amendments) 20.55 - 20.59). 

Subsequently, the lessee shall measure the right-of-use asset under a cost model, except in certain circumstances. 

Under the cost model, the right-of-use asset should be held at cost, less any accumulated depreciation and accumulated impairment losses, and adjusted for any remeasurement. 

Depreciation for the right-of-use asset will be calculated in accordance with either IAS 16 or FRS 102 Section 17 as appropriate, and impairment would be calculated in accordance with IAS 36 or FRS 102 Section 27. 

If a lessee applies the fair value model in IAS 40 or FRS 102 Section 16 to its investment property, the lessee shall also apply that fair value model to right-of-use assets that meet the IAS 40 or FRS 102 Section 16 investment property definition. 

If a right-of-use asset relates to a class of property, plant and equipment to which the lessee applies the IAS 16 or FRS 102 Section 16 revaluation model, a lessee may elect to apply that revaluation model to all the right-ofuse assets that relate to that class of property, plant and equipment. 

Lease liability subsequent measurement (IFRS 16. 36 – 42; FRS 102 (2024 amendments) 20.62-20.68) 

Subsequently, the lease liability is increased by the unwinding of the interest on the lease, offset by lease payments made, adjusted for any remeasurement in relation to certain lease modifications or to reflect revised in-substance fixed lease payments. 

The interest on the lease should be recognised in the P&L account, along with any variable lease payments not included in the measurement of the lease liability. 

Any remeasurement of the lease liability is also recognised as an adjustment to the right-of-use asset, unless any adjustment would reduce the right-of-use asset to less than zero, in which case the balance is recognised in the profit and loss account. 

Remeasurement occurs when there is a change in lease term, a change in the assessment of the option to purchase, a change in the amount expected to be payable under a residual value guarantee or there is a change to future lease payments resulting from a change in an index or rate used to determine the future lease payments. 

Disclosure (IFRS 16.53) 

Under IFRS 16 a lessee must disclose the following: 

  • The depreciation charge for right-of-use assets by class of underlying asset; 

  • Interest expense on lease liabilities; 

  • The expense relating to short-term leases; 

  • The expense relating to leases of low-value assets; 

  • The expense relating to variable lease payments not included in the measurement of lease liabilities; 

  • Income from subleasing right-of-use assets; 

  • Total cash outflow for leases; 

  • Additions to right-of-use assets; 

  • Gains or losses arising from sale and leaseback transactions; and 

The carrying amount of right-of-use assets at the period end, by class of assets. 

Under FRS 102 a lessee must disclose the following (FRS 102 (2024 amendments) 20.80): 

  • Interest expense on lease liabilities; 

  • The expense relating to short term leases; 

  • The expense relating to leases of low-value assets; 

  • The expense relating to variable lease payments not included in the measurement of lease liabilities; 

  • Income from subleasing right-of-use assets; 

  • Total cash outflow for leases; 

  • Gains or losses arising from sale and leaseback transactions 

Under FRS 102 a lessee must also disclose the following by class of underlying asset (FRS 102 (2024 amendments) 20.81). 

  • The depreciation charge for right-of-use assets; 

  • Additions; 

  • Disposals; 

  • Acquisitions through business combinations; 

  • Revaluations; 

  • Impairment losses; 

  • Depreciation; 

  • The gross carrying amount and accumulated depreciation at the beginning and end of the reporting period;

  • Other changes. 

Further disclosures are required where the cost model is not used for right-of-use assets. A maturity analysis of lease liabilities is also required, in accordance with IFRS 7 Financial Instruments: Disclosures and FRS 102 (2024 amendments) Section 11 Basic Financial Instruments 

Additional qualitative and quantitative disclosures may be required.