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Initial measurement
Initial recognition of the leased asset and lease
liability is the lower of the fair value of the
leased property and the present value of the minimum
lease payments (MLP) [IAS17.20(R.05)]
. A leased asset
cannot be recognised at above its fair value . There
is a presumption that at the inception of the lease
the asset and liability values will be equal [IAS17.22(R.05)]
. The lease obligation as computed
under the standard, however, is often lower than
the fair value of the leased asset. This arises
because the discount rate (the interest rate implicit
in the lease) is derived to include any unguaranteed
residual value.
The MLP may include amounts in addition to the
rental payments due over the lease term [IAS17.4(R.05)]
. The discount factor used
to calculate the MLP's present value is the interest
rate implicit in the lease . Where
it is not practicable to determine this rate, IFRS
permit the use of the lessee's incremental borrowing
rate [IAS17.20(R.05)]
Subsequent measurement
Lease payments are periodically apportioned between
a finance charge and a reduction of the obligation
for future lease payments [IAS17.25(R.05)].
The finance charge is allocated to income throughout
the lease term to produce a constant periodic rate
of interest on the remaining balance of the liability
for each period [IAS17.25(R.05)]. As the outstanding
obligation diminishes, so too does the periodic
finance charge
.
Derecognition
Derecognition of a lease liability may occur when
circumstances indicate that a lessee has no further
present obligation under a lease [IAS39.39(R.05)].
Impact of financial instruments
Lease liabilities are not financial liabilities
as defined by IFRS [IAS39.2(R.05)].
Disclosure
The required disclosures in respect of lease liabilities
are [IAS17.31(R.05)]:
| a) |
a reconciliation
between the total MLP, at the balance sheet
date, and their present value. In addition,
an entity shall disclose the total of the MLP
at each balance sheet date, and their present
value, for each of the following periods: |
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not later than one year; |
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not later than one year and not later
than five years; and |
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later than five years. |
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| b) |
a general description
of the lessee's significant leasing arrangements
including, but not limited to: |
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the basis on which contingent rent
payments are determined; |
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the existence and terms of renewal
or purchase options and escalation clauses;
and |
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restrictions imposed by lease arrangements,
such as those concerning dividends, additional
debt, and further leasing. |
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