CIMA F1 Syllabus B. Financial Statements - Lessee Accounting - Notes
Basic Rule
Lessees recognise a right to use asset and associated liability on its SFP for most leases
How to Value the Liability
Present value of the lease payments
How to Value the Right of Use asset?
Includes the following:
The Lease Liability (PV of payments)
All initial direct costs
After the initial Measurement - Asset
Cost - depreciation (normally straight line) less any impairments
After the initial Measurement - Liability
Effective interest rate method (amortised cost)
Example
3 year lease term
Annual lease payments in arrears 5,000
Rate implicit in lease: 12.04%
PV of lease payments: 12,000
Answer
The lease liability is initially the PV of future lease payments - given here to be 12,000
Double entry: Dr Asset 12,000 Cr Lease Liability 12,000
The Asset is then depreciated by 4,000pa (12,000 / 3)
The lease liability uses amortised cost:
Opening | Interest (I/S) 12.04% | (Payment) | Closing |
---|---|---|---|
12,000 | 1,445 | (5,000) | 8,445 |
8,445 | 1,017 | (5,000) | 4,463 |
4,463 | 537 | (5,000) | 0 |
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Leases - definition
Syllabus B. Financial Statements
B2b. Leases - IFRS 16
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Lease Accounting Example
Syllabus B. Financial Statements
B2b. Leases - IFRS 16