ACCA FR IFRS 16 Leases: The Section B Traps Most Candidates Fall Into (June 2026)

The Problem With IFRS 16 in FR Exams

Most candidates sitting ACCA FR cannot reliably score on IFRS 16 questions. The September/December 2025 examiner's report shows the entire Section B case — five questions worth 10 marks — was answered poorly by the majority of candidates. Many had clearly not studied lease exemptions at all.

With IFRS 16 appearing in every sitting, this is not an area you can leave to chance before June 2026. Here are the specific traps from the examiner's report and exactly how to avoid them.

Trap 1: Including the Deposit in the Opening Lease Liability

The most common error in the Section B case was carrying the wrong opening lease liability figure into year two. In the Klokken Co scenario, a deposit of $40,000 was paid on the commencement date, alongside the present value of future payments of $446,500. The opening lease liability should be $406,500 — not $446,500. Any payment made at commencement reduces the liability immediately.

Wrong: Opening liability = $446,500. Interest year 1 = $446,500 × 11% = $49,115. Closing liability after $110,000 payment = $385,615. Interest year 2 = $385,615 × 11% = $42,418.

Correct: Opening liability = $446,500 − $40,000 = $406,500. Interest year 1 = $406,500 × 11% = $44,715 → rounded to $45,000. Closing liability = $406,500 + $45,000 − $110,000 = $341,500 → rounded to $342,000. Interest year 2 = $342,000 × 11% = $37,620 → rounded to $38,000.

The most common wrong answer was $45,000 — the year-one interest figure. Candidates had not scrolled back to re-read that the question asked for year two. Read the requirement carefully every time.

Trap 2: Not Knowing the Exemption Rules

The examiner reported that the spread of answers on the exemption questions suggested many candidates had guessed. If you have not studied IFRS 16 paragraphs 5 to 8, you will lose these marks every sitting.

Two exemptions exist under IFRS 16. The short-term lease exemption applies to leases with a term of 12 months or less at commencement and must be elected by class of underlying asset — not lease by lease. The low-value asset exemption can be elected on a lease-by-lease basis. This distinction is examined directly.

In the Klokken Co case, tablet devices with a fair value of $26,000 qualified as low-value. Because the exemption applies lease by lease, the company recognised a straight-line expense rather than a right-of-use asset and lease liability. The liability at year-end was simply the accrued expense: (12/36) × (2 × $16,000) = $10,667, rounded to $11,000. Most candidates selected $26,000 (the fair value) or $32,000 (total payments), suggesting they tried to apply standard IFRS 16 accounting instead of the exemption.

Trap 3: Getting the Sale and Leaseback Gain Wrong

Sale and leaseback under IFRS 16 is a multi-step calculation and most candidates either avoided it or calculated the full gain of $2.4m without restriction. The examiner confirmed this was the most common error.

In the Klokken Co scenario, a property was sold for its fair value of $7.4m (carrying amount $5m). The leaseback payments were $1.6m per year for five years, discounted using a factor of 4.452 giving a lease liability of $7.123m.

The gain recognised is restricted to the portion of the asset effectively sold — not retained through the leaseback. The calculation:

Right retained = $7.123m ÷ $7.4m = 96.3% retained. Portion sold = $7.4m − $7.123m = $277,000. Recognised gain = ($7.4m − $5m) × ($277,000 ÷ $7.4m) = $2.4m × 3.74% = $89,838 ($90,000).

If you recognised the full $2.4m gain, you have made the most common error. The seller-lessee only recognises the gain on the portion they have transferred — not the portion retained through the right-of-use asset.

What to Do Before June 2026

First, memorise which exemption is elected by class (short-term) and which is elected lease by lease (low-value). This distinction is tested in objective format and there is no way to work it out — you either know it or you do not.

Second, when you see a deposit or upfront payment at lease commencement, subtract it from the present value of future payments before you build your amortisation table. Write this as a step in your working, not a mental adjustment.

Third, for sale and leaseback, practise the three-step approach: (1) calculate the lease liability, (2) calculate the portion sold as fair value minus lease liability, (3) restrict the total gain by the portion sold divided by the fair value. The ACCA practice platform has the Klokken Co question available — work through it in exam conditions before June.

The Numbers Behind This

The FR pass rate for September/December 2025 was 42%. IFRS 16 accounted for an entire 10-mark Section B case in that sitting. Candidates who could not handle lease exemptions, deposit adjustments, and sale and leaseback were starting the exam 10 marks down before they reached Section C. That is a margin you cannot recover from.

IFRS 16 is not complex once you understand the structure — it is just unfamiliar. Give it two focused hours before June and you will be ahead of most of the room.