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PFRS 16

This document provides an overview of key concepts relating to lease accounting under PFRS 16. It defines a lease and identifies the parties involved. For a lessee, it describes how to recognize a right-of-use asset and lease liability on the balance sheet. It also distinguishes between finance and operating leases from the perspective of a lessor and how each are treated in the financial statements. The document aims to help understand the accounting treatment of leases according to PFRS 16.

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Princess Jullyn Claudio
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165 views14 pages

PFRS 16

This document provides an overview of key concepts relating to lease accounting under PFRS 16. It defines a lease and identifies the parties involved. For a lessee, it describes how to recognize a right-of-use asset and lease liability on the balance sheet. It also distinguishes between finance and operating leases from the perspective of a lessor and how each are treated in the financial statements. The document aims to help understand the accounting treatment of leases according to PFRS 16.

Uploaded by

Princess Jullyn Claudio
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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PFRS 16

LEASES
LEARNING OBJECTIVES

1. Identify a lease.

Describe the general recognition and recognition exemption rel. to the


2.
accounting for leases by a lessee.

3. State the lease classifications by a lessor.

4. State the indicators of a finance lease.

5. Describe the accounting for finance leases & operating leases by a lessor.
LEASE
A contract, or part of a contract, that
conveys the right to use an asset for
a period of time in exchange for
consideration
PARTIES TO A LEASE
CONTRACT
LESSEE
Entity that obtains the right to use an
underlying asset for a period of time in exchange
for consideration

LESSOR
Entity that provides the right to use an
underlying asset for a period of time in exchange
for consideration
IDENTIFYING 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

An entity has the right to control the use of an identified


asset if it has both of the following:

1. The right to obtain substantially all of the economic


benefits from the use of the identified asset.

2. The right to direct the use of the identified asset.


IDENTIFIED ASSET
An asset can be identified by being explicitly stated in
the contract or by being implicitly specified at the time
asset is made available for use by the customer

PORTIONS OF ASSETS
An identified asset if it is physically distinct.

If not physically distinct, the portion is not an identified


asset, unless it represents substantially all of the
capacity of the asset.
SUBSTANTIVE SUBSTITUTION RIGHTS
An asset is not an identified asset if the supplier has
the substantive right to substitute it throughout the
period of use
SUBSTANTIVE IF:
a. The supplier has the practical ability to substitute alternative
assets throughout the period of use

b. The supplier would benefit economically from the exercise of


its right to substitute the asset

A supplier's right to substitute an asset is not substantive if it


cannot be exercised throughout the period of use
RIGHT TO OBTAIN ECONOMIC BENEFITS FROM
A customer controls theUSE
use of an identified asset if it
has the right to obtain substantially all of the economic
benefits from the asset throughout the period of use.

RIGHT TO DIRECT THE USE


a. The customer has the right to direct how and for what purpose
the asset is used throughout the period of use

b. The asset's use is predetermined and the supplier is


precluded from changing that predetermined use
PROTECTIVE RIGHTS
Contractual restrictions designed to protect the
supplier's interest in the asset or its personnel,
or to ensure compliance with laws or regulations
LEASE TERM
Non-cancellable period of a lease, together with
periods covered by an option extend and terminate the
lease if the lessee is reasonably certain not to exercise
that option

Non-cancellable Period
Period in which the contract is enforceable
LESSEE ACCOUNTING
LEASE LIABILITY RIGHT- OF-USE ASSET
 Fixed payments  Amount for lease liability
 Variable lease payments  Lease payments on or before the
 Under residual value guarantee commencement date - lease
 Exercise price of a purchase incentives
option  Initial direct costs
 Payments for penalties for  Estimate of dismantling costs
terminating the lease

 Interest on the Lease Liability  Cost Model (IAS 16)


 Reduction of the Lease Liability  Fair Value Model (IAS 40)
 Revaluation Model (IAS 16)
 Impairment Tests (IAS 36)
LESSOR ACCOUNTING
FINANCE LEASE OPERATING LEASE
 Rewards and risks are transferred  Rewards and risks are not
to lessee transferred to lessee

INDICATORS  Straight-line basis


 Transfer of ownership
 Option to purchase the asset at
price < fair value
 Lease term - major part of the
economic life of the asset
 Present value of lease payments -
close to fair value
 Leased assets are of specialized
nature
LESSOR ACCOUNTING
FINANCE LEASE OPERATING LEASE
 Lessor derecognizes leased asset  Lessor recognizes lease
and recognizes net investmentt in payments as lease income over
the lease the lease term using straight line
 Net investment in the lease is basis, or another more
subsequently measured at appropriate basis
amortized cost  Continues to depreciate the
leased asset
Reference: Conceptual Frameworks and Accounting
Standards, 2019 Edition by Zeus Vernon B. Millan

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