BLM17040 - IFRS 16 accounting: Subsequent measurement and accounts disclosure

Right of use asset subsequent measurement

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 IAS 16, and impairment would be calculated in accordance with IAS 36.

If a lessee applies the fair value model in IAS 40 to its investment property, the lessee shall also apply that fair value model to right of use assets that meet the IAS 40 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 revaluation model, a lessee may elect to apply that revaluation model to all of the right of use assets that relate to that class of property, plant and equipment.

Lease liability subsequent measurement

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 theright 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

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.

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.

Additional qualitative and quantitative disclosures may be required to meet the IFRS 16 disclosure objective.