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IFRS 16

Leases

In April 2001 the International Accounting Standards Board (Board) adopted IAS 17 Leases,

which had originally been issued by the International Accounting Standards Committee

(IASC) in December 1997. IAS 17 Leases replaced IAS 17 Accounting for Leases that was issued

in September 1982.

In April 2001 the Board adopted SIC‑15 Operating Leases—Incentives, which had originally

been issued by the Standing Interpretations Committee of the IASC in December 1998.

In December 2001 the Board issued SIC‑27 Evaluating the Substance of Transactions Involving

the Legal Form of a Lease. SIC‑27 had originally been developed by the Standing

Interpretations Committee of the IASC to provide guidance on determining, amongst

other things, whether an arrangement that involves the legal form of a lease meets the

definition of a lease under IAS 17.

In December 2003 the Board issued a revised IAS 17 as part of its initial agenda of

technical projects.

In December 2004 the Board issued IFRIC 4 Determining whether an Arrangement contains a

Lease. The Interpretation was developed by the Interpretations Committee to provide

guidance on determining whether transactions that do not take the legal form of a lease

but convey the right to use an asset in return for a payment or series of payments are, or

contain, leases that should be accounted for in accordance with IAS 17.

In January 2016 the Board issued IFRS 16 Leases. IFRS 16 replaces IAS 17, IFRIC 4, SIC‑15

and SIC‑27. IFRS 16 sets out the principles for the recognition, measurement,

presentation and disclosure of leases.

Other Standards have made minor consequential amendments to IFRS 16,

including Amendments to References to the Conceptual Framework in IFRS Standards (issued

March 2018).

IFRS 16

CONTENTS

from paragraph

INTERNATIONAL FINANCIAL REPORTING

STANDARD 16 LEASES

OBJECTIVE 1

SCOPE 3

RECOGNITION EXEMPTIONS 5

IDENTIFYING A LEASE 9

Separating components of a contract 12

LEASE TERM 18

LESSEE 22

Recognition 22

Measurement 22

Presentation 47

Disclosure 51

LESSOR 61

Classification of leases 61

Finance leases 67

Operating leases 81

Disclosure 89

SALE AND LEASEBACK TRANSACTIONS 98

Assessing whether the transfer of the asset is a sale 99

APPENDICES

A Defined terms

B Application guidance

C Effective date and transition

D Amendments to other Standards

APPROVAL BY THE BOARD OF IFRS 16 LEASES ISSUED IN JANUARY 2016

FOR THE ACCOMPANYING GUIDANCE LISTED BELOW, SEE PART B OF THIS EDITION

ILLUSTRATIVE EXAMPLES

APPENDIX TO THE ILLUSTRATIVE EXAMPLES

Amendments to guidance on other Standards

FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION

BASIS FOR CONCLUSIONS

DISSENTING OPINION

APPENDIX TO THE BASIS FOR CONCLUSIONS Amendments

to the Basis for Conclusions on other Standards

IFRS 16

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International Financial Reporting Standard 16 Leases (IFRS 16) is set out in paragraphs

1–103 and Appendices A–D. All the paragraphs have equal authority. Paragraphs

in bold type state the main principles. Terms defined in Appendix A are in italics the

first time that they appear in the Standard. Definitions of other terms are given in the

Glossary for International Financial Reporting Standards. The Standard should be read

in the context of its objective and the Basis for Conclusions, the Preface to IFRS

Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies,

Changes in Accounting Estimates and Errors provides a basis for selecting and applying

accounting policies in the absence of explicit guidance.

IFRS 16

International Financial Reporting Standard 16

Leases

Objective

This Standard sets out the principles for the recognition, measurement,

presentation and disclosure of leases. The objective is to ensure that lessees

and lessors provide relevant information in a manner that faithfully

represents those transactions. This information gives a basis for users of

financial statements to assess the effect that leases have on the financial

position, financial performance and cash flows of an entity.

An entity shall consider the terms and conditions of contracts and all relevant

facts and circumstances when applying this Standard. An entity shall apply

this Standard consistently to contracts with similar characteristics and in

similar circumstances.

Scope

An entity shall apply this Standard to all leases, including leases of right-of-use

assets in a sublease, except for:

(a) leases to explore for or use minerals, oil, natural gas and similar non-

regenerative resources;

(b) leases of biological assets within the scope of IAS 41 Agriculture held by

a lessee;

(c) service concession arrangements within the scope of IFRIC 12 Service

Concession Arrangements;

(d) licences of intellectual property granted by a lessor within the scope of

IFRS 15 Revenue from Contracts with Customers; and

(e) rights held by a lessee under licensing agreements within the scope of

IAS 38 Intangible Assets for such items as motion picture films, video

recordings, plays, manuscripts, patents and copyrights.

A lessee may, but is not required to, apply this Standard to leases of intangible

assets other than those described in paragraph 3(e).

Recognition exemptions (paragraphs B3–B8)

A lessee may elect not to apply the requirements in paragraphs 22–49 to:

(a) short-term leases; and

(b) leases for which the underlying asset is of low value (as described in

paragraphs B3–B8).

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If a lessee elects not to apply the requirements in paragraphs 22–49 to either

short-term leases or leases for which the underlying asset is of low value, the

lessee shall recognise the lease payments associated with those leases as an

expense on either a straight-line basis over the lease term or another systematic

basis. The lessee shall apply another systematic basis if that basis is more

representative of the pattern of the lessee’s benefit.

If a lessee accounts for short-term leases applying paragraph 6, the lessee shall

consider the lease to be a new lease for the purposes of this Standard if:

(a) there is a lease modification; or

(b) there is any change in the lease term (for example, the lessee exercises

an option not previously included in its determination of the lease

term).

The election for short-term leases shall be made by class of underlying asset to

which the right of use relates. A class of underlying asset is a grouping of

underlying assets of a similar nature and use in an entity’s operations. The

election for leases for which the underlying asset is of low value can be made

on a lease-by-lease basis.

Identifying a lease (paragraphs B9–B33)

At inception of a contract, an entity shall assess whether the contract is, or

contains, a lease. A contract is, or contains, a lease if the contract conveys

the right to control the use of an identified asset for a period of time in

exchange for consideration. Paragraphs B9–B31 set out guidance on the

assessment of whether a contract is, or contains, a lease.

A period of time may be described in terms of the amount of use of an

identified asset (for example, the number of production units that an item of

equipment will be used to produce).

An entity shall reassess whether a contract is, or contains, a lease only if the

terms and conditions of the contract are changed.

Separating components of a contract

For a contract that is, or contains, a lease, an entity shall account for each

lease component within the contract as a lease separately from non-lease

components of the contract, unless the entity applies the practical expedient

in paragraph 15. Paragraphs B32–B33 set out guidance on separating

components of a contract.

Lessee

For a contract that contains a lease component and one or more additional

lease or non-lease components, a lessee shall allocate the consideration in the

contract to each lease component on the basis of the relative stand-alone price

of the lease component and the aggregate stand-alone price of the non-lease

components.

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IFRS 16

The relative stand-alone price of lease and non-lease components shall be

determined on the basis of the price the lessor, or a similar supplier, would

charge an entity for that component, or a similar component, separately. If an

observable stand-alone price is not readily available, the lessee shall estimate

the stand-alone price, maximising the use of observable information.

As a practical expedient, a lessee may elect, by class of underlying asset, not to

separate non-lease components from lease components, and instead account

for each lease component and any associated non-lease components as a single

lease component. A lessee shall not apply this practical expedient to

embedded derivatives that meet the criteria in paragraph 4.3.3 of IFRS 9

Financial Instruments.

Unless the practical expedient in paragraph 15 is applied, a lessee shall

account for non-lease components applying other applicable Standards.

Lessor

For a contract that contains a lease component and one or more additional

lease or non-lease components, a lessor shall allocate the consideration in the

contract applying paragraphs 73–90 of IFRS 15.

Lease term (paragraphs B34–B41)

An entity shall determine the lease term as the non-cancellable period of a

lease, together with both:

(a) periods covered by an option to extend the lease if the lessee is

reasonably certain to exercise that option; and

(b) periods covered by an option to terminate the lease if the lessee is

reasonably certain not to exercise that option.

In assessing whether a lessee is reasonably certain to exercise an option to

extend a lease, or not to exercise an option to terminate a lease, an entity shall

consider all relevant facts and circumstances that create an economic

incentive for the lessee to exercise the option to extend the lease, or not to

exercise the option to terminate the lease, as described in paragraphs

B37–B40.

A lessee shall reassess whether it is reasonably certain to exercise an extension

option, or not to exercise a termination option, upon the occurrence of either

a significant event or a significant change in circumstances that:

(a) is within the control of the lessee; and

(b) affects whether the lessee is reasonably certain to exercise an option

not previously included in its determination of the lease term, or not

to exercise an option previously included in its determination of the

lease term (as described in paragraph B41).

An entity shall revise the lease term if there is a change in the non-cancellable

period of a lease. For example, the non-cancellable period of a lease will

change if:

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IFRS 16

(a) the lessee exercises an option not previously included in the entity’s

determination of the lease term;

(b) the lessee does not exercise an option previously included in the

entity’s determination of the lease term;

(c) an event occurs that contractually obliges the lessee to exercise an

option not previously included in the entity’s determination of the

lease term; or

(d) an event occurs that contractually prohibits the lessee from exercising

an option previously included in the entity’s determination of the lease

term.

Lessee

Recognition

At the commencement date, a lessee shall recognise a right-of-use asset and a

lease liability.

Measurement

Initial measurement

Initial measurement of the right-of-use asset

At the commencement date, a lessee shall measure the right-of-use asset at

cost.

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IFRS 16