Exposure Draft ED/2013/6 Leases - International Accounting Standards Board (IASB)

Exposure Draft ED/2013/6 Leases is published by the International Accounting Standards Board (IASB) for comment only. The proposals may be modified in the light of the comments received before being issued in final form. The proposed requirements would affect any entity that enters into a lease, with some specified scope exemptions. The proposed requirements would supersede IAS 17 Leases (and related Interpretations) in International Financial Reporting Standards (IFRSs) and the requirements in Topic 840, Leases, (and related Subtopics) of the FASB Accounting Standards Codification®.

Exposure Draft ED/2013/6
May 2013
Comments to be received by 13 September 2013
Leases

Exposure Draft
Leases
Comments to be received by 13 September 2013

Exposure Draft ED/2013/6Leasesis published by the InternationalAccounting Standards
Board (IASB)for commentonly. The proposalsmay be modified in the light of the
comments received before being issued in final form.Comments need to be received by
13 September2013and should be submitted in writing to the addressbelow or
electronically via our website www.ifrs.org using the ‘Comment on a proposal’ page.
All responses willbe put on the public record and posted on our website unless the
respondent requests confidentiality.Confidentiality requests will not normally be granted
unless supported by good reason, such as commercial confidence.
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CONTENTS
from page
INTRODUCTION AND QUESTIONS FOR RESPONDENTS 5
[DRAFT] INTERNATIONAL FINANCIAL REPORTING
STANDARD X LEASES 13
INTRODUCTION 13
OBJECTIVE 13
SCOPE 13
IDENTIFYING A LEASE 13
Fulfilment of the contract depends on the use of an identified asset 14
Contract conveys the right to control the use of an identified asset 15
Ability to direct the use 15
Ability to derive the benefits from use 16
Separating components of a contract 16
Lessor 16
Lessee 17
LEASE TERM 17
CLASSIFICATION OF LEASES 18
CONTRACT MODIFICATIONS 19
LESSEE 19
Recognition 19
Measurement 19
Initial measurement 19
Initial measurement of the lease payments included in the lease liability 19
Initial measurement of the right-of-use asset 20
Subsequent measurement 20
Reassessment of the lease liability 21
Amortisation of the right-of-use asset 22
Impairment of the right-of-use asset 22
Alternative measurement bases for the right-of-use asset 22
Presentation 22
Disclosure 23
LESSOR 25
Type A leases 25
Recognition 25
Measurement 26
Initial measurement 26
Subsequent measurement 27
Presentation 30
Type B leases 31
Disclosure 31
Disclosures relating to Type A leases 32
Disclosures relating to Type B leases 33
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SALE AND LEASEBACK TRANSACTIONS 33
Determining whether the transfer of the asset is a sale 33
Transfer of the asset is a sale 34
Transfer of the asset is not a sale 34
Disclosure 35
SHORT-TERM LEASES 35
APPENDICES
A Defined terms 36
B Application guidance 39
C Effective date and transition 44
D [Draft] Amendments to other IFRSs 49
APPROVAL BY THE BOARD OF LEASES 89
BASIS FOR CONCLUSIONS see separate booklet
ILLUSTRATIVE EXAMPLES see separate booklet
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Introduction and questions for respondents
Why are the IASB and the FASB publishing this revised
Exposure Draft?
Leasing is an important activity for many entities.It is a means of gaining access to assets,
of obtaining finance, and of reducing an entity’s exposure to the risks of asset ownership.
The prevalence ofleasing,therefore,means that it is important that users offinancial
statements have a complete and understandable picture of an entity’s leasing activities.The
existing accounting models for leases require lessees and lessors to classify their leases as
either finance leases or operating leases and account for those leases differently.Those
models have been criticised for failing to meet the needs of users of financial statements
because they do not always provide a faithfulrepresentation of leasing transactions.In
particular, they do not require lesseesto recognise assetsand liabilities arising from
operating leases.As a result,there has been a longstanding request from many users of
financial statements and others to change the accounting requirements so thatlessees
would be required to recognise those assets and liabilities.
Accordingly,the InternationalAccounting Standards Board (IASB)and the US Financial
Accounting Standards Board (FASB)initiated a joint project to develop a new approach to
lease accounting that would require assetsand liabilities arising from leases to be
recognised in the statement of financial position.
To meet that objective,the IASB and the FASB have jointly developed a revised draft
Standard on leases.The boards developed the proposals in this revised Exposure Draft after
considering responses to their Discussion PaperLeases: Preliminary Views, which was issued in
March 2009, and the IASB’s initial Exposure DraftLeasesand the proposed FASB Accounting
Standards Update, Leases (Topic 840), which were issued in August 2010.
Although many of the problems associated with existing leases requirements relate to the
accounting for operating leases in the financial statements of lessees, retaining the existing
lease accounting models for lessors would be inconsistent with the proposed approach to
lessee accounting and would result in additionalcomplexity in financialreporting. In
addition, the boards decided that it would be beneficial to consider lessor accounting at the
same time they are developing proposalson revenue recognition. Consequently,this
Exposure Draft proposes changes to both lessee accounting and lessor accounting.
Who would be affected by the proposals?
The proposed requirements would affect any entity that enters into a lease,with some
specified scope exemptions.The proposed requirements would supersede IAS 17Leases(and
related Interpretations)in International Financial Reporting Standards(IFRSs)and the
requirements in Topic 840, Leases, (and related Subtopics) of the FASBAccounting Standards
Codification®
.
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What are the main proposals?
The core principle of the proposed requirements is that an entity should recognise assets
and liabilities arising from a lease.This represents an improvement over existing leases
requirements,which do not require lease assets and lease liabilities to be recognised by
many lessees.
In accordance with that principle, a lessee would recognise assets and liabilities for leases
with a maximum possible term ofmore than 12 months. A lessee would recognise a
liability to make lease payments (the lease liability) and a right-of-use asset representing its
right to use the leased asset (the underlying asset) for the lease term.
The recognition, measurement and presentation of expenses and cash flows arising from a
lease by a lessee would depend on whether the lessee is expected to consume more than an
insignificantportion of the economic benefits embedded in the underlying asset.For
practical purposes,this assessment would often depend on the nature of the underlying
asset.
For most leases of assets other than property (for example, equipment, aircraft, cars, trucks),
a lessee would classify the lease as a Type A lease and would do the following:
(a) recognise a right-of-use asset and a lease liability, initially measured at the present
value of lease payments; and
(b) recognise the unwinding of the discount on the lease liability as interest separately
from the amortisation of the right-of-use asset.
For most leases of property (ie land and/or a building or part of a building), a lessee would
classify the lease as a Type B lease and would do the following:
(a) recognise a right-of-use asset and a lease liability, initially measured at the present
value of lease payments; and
(b) recognise a single lease cost, combining the unwinding of the discount on the lease
liability with the amortisation of the right-of-use asset, on a straight-line basis.
Similarly, the accounting applied by a lessor would depend on whether the lessee is
expected to consumemore than an insignificant portion of the economic benefits
embedded in the underlying asset.For practicalpurposes,this assessment would often
depend on the nature of the underlying asset.
For most leases of assets other than property, a lessor would classify the lease as a Type A
lease and would do the following:
(a) derecognise the underlying asset and recognise a right to receive lease payments
(the lease receivable) and a residual asset (representing the rights the lessor retains
relating to the underlying asset);
(b) recognise the unwinding ofthe discount on both the lease receivable and the
residual asset as interest income over the lease term; and
(c) recognise any profit relating to the lease at the commencement date.
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For most leases of property,a lessor would classify the lease as a Type B lease and would
apply an approach similar to existing operating lease accounting in which the lessor would
do the following:
(a) continue to recognise the underlying asset; and
(b) recognise lease income over the lease term, typically on a straight-line basis.
When measuring assets and liabilities arising from a lease,a lessee and a lessor would
exclude most variable lease payments.In addition, a lessee and a lessor would include
payments to be made in optionalperiods only if the lessee has a significant economic
incentive to exercise an option to extend the lease, or not to exercise an option to terminate
the lease.
For leases with a maximum possible term (including any options to extend) of 12 months or
less, a lessee and a lessor would be permitted to make an accounting policy election, by class
of underlying asset,to apply simplified requirements that would be similar to existing
operating lease accounting.
An entity would provide disclosures to meet the objective of enabling users of financial
statements to understand the amount,timing and uncertainty of cash flows arising from
leases.
On transition, a lessee and a lessor would recognise and measure leases at the beginning of
the earliestperiod presented using either a modified retrospective approach or a full
retrospective approach.
When would the proposals be effective?
The boards will set the effective date for the proposed requirements when they consider
interested parties’ feedback on this revised Exposure Draft.The boards are aware that the
proposals affect almost every reporting entity.Some of those entities have many leases, and
the proposed changes to accounting for leases are significant.The boards willconsider
these and other relevant factors when setting the effective date.
Questions for respondents
The boards invite individuals and organisations to comment on the proposals in this revised
Exposure Draft and, in particular, on the questions below.Respondents need not comment
on all of the questions.
Comments are requested from those who agree and those who disagree with the proposals.
Comments are most helpfulif they identify and clearly explain the issue or question to
which they relate.Those who disagree with a proposal are asked to describe their suggested
alternative(s), supported by specific reasoning and examples, if possible.
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Respondents should submit one comment letter to either the IASB or the FASB.The boards
will jointly consider all comment letters received.
Scope
Question 1: identifying a lease
This revised Exposure Draft defines a lease as “a contract that conveys the right to use
an asset (the underlying asset) for a period of time in exchange for consideration”.An
entity would determine whether a contract contains a lease by assessing whether:
(a) fulfilment of the contract depends on the use of an identified asset; and
(b) the contract conveys the right to control the use of the identified asset for a
period of time in exchange for consideration.
A contract conveys the right to control the use of an asset if the customer has the ability
to direct the use and receive the benefits from use of the identified asset.
Do you agree with the definition of a lease and the proposed requirements in
paragraphs 6–19 for how an entity would determine whether a contract contains a
lease? Why or why not? If not, how would you define a lease? Please supply specific fact
patterns, if any, to which you think the proposed definition of a lease is difficult to
apply or leads to a conclusion that does not reflect the economics of the transaction.
The accounting model
This revised Exposure Draftwould require an entity to recognise assets and liabilities
arising from a lease.
When assessing how to account for a lease, a lessee and a lessor would classify a lease on the
basis of whether a lessee is expected to consume more than an insignificant portion of the
economic benefits embedded in the underlying asset.
This revised Exposure Draft would require an entity to apply that consumption principle by
presuming that leases of property are Type B leases and leases of assets other than property
are Type A leases,unless specified classification criteria are met.Those classification
criteria are different for leases of property and leases of assets other than property to reflect
the different natures of property (which often embeds a land element) and assets other than
property.
The boards acknowledge that, for some leases, the application of the classification criteria
might result in different outcomes than if the consumption principle were to be applied
without additional requirements.Nonetheless,this revised Exposure Draft would require
an entity to classify leases by applying the classification criteria in paragraphs 29–31 to
simplify the proposals.
Lessee accounting
A lessee would do the following:
(a) for all leases, recognise a right-of-use asset and a lease liability, initially measured at
the present value of lease payments (except if a lessee elects to apply the recognition
exemption for short-term leases).
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(b) for Type A leases, subsequently measure the lease liability on an amortised cost basis
and amortise the right-of-use asset on a systematic basis that reflects the pattern in
which the lessee expectsto consume the right-of-use asset’sfuture economic
benefits. The lessee would present the unwinding ofthe discount on the lease
liability as interest separately from the amortisation of the right-of-use asset.
(c) for Type B leases, subsequently measure the lease liability on an amortised cost basis
and amortise the right-of-use asset in each period so that the lessee would recognise
the total lease cost on a straight-line basis over the lease term.In each period, the
lessee would present a single lease cost combining the unwinding of the discount on
the lease liability with the amortisation of the right-of-use asset.
Lessor accounting
A lessor would do the following:
(a) for Type A leases, derecognise the underlying asset and recognise a lease receivable
and a residual asset.The lessor would recognise both of the following:
(i) the unwinding of the discount on both the lease receivable and the residual
asset as interest income over the lease term; and
(ii) any profit relating to the lease (as described in paragraph 74)at the
commencement date.
(b) for Type B leases(and any short-term leasesif the lessor electsto apply the
exemption for short-term leases),continue to recognise the underlying asset and
recognise lease income over the lease term, typically on a straight-line basis.
Question 2: lessee accounting
Do you agree that the recognition, measurement and presentation of expenses and cash
flows arising from a lease should differ for different leases, depending on whether the
lessee is expected to consume more than an insignificant portion of the economic
benefits embedded in the underlying asset? Why or why not? If not, what alternative
approach would you propose and why?
Question 3: lessor accounting
Do you agree that a lessor should apply a different accounting approach to different
leases, depending on whether the lessee is expected to consume more than an
insignificant portion of the economic benefits embedded in the underlying asset? Why
or why not? If not, what alternative approach would you propose and why?
Question 4: classification of leases
Do you agree that the principle on the lessee’s expected consumption of the economic
benefits embedded in the underlying asset should be applied using the requirements set
out in paragraphs 28–34, which differ depending on whether the underlying asset is
property? Why or why not? If not, what alternative approach would you propose and
why?
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Measurement
This revised Exposure Draft would require that a lessee and a lessor measure assets and
liabilities arising from a lease on a basis that:
(a) reflects a lease term determined as the non-cancellable period, together with both of
the following:
(i) periods covered by an option to extend the lease if the lessee has a significant
economic incentive to exercise that option; and
(ii) periods covered by an option to terminate the lease ifthe lessee has a
significant economic incentive not to exercise that option.
(b) includes fixed lease payments and variable lease payments that depend on an index
or a rate (such as the Consumer Price Index or a market interest rate), but excludes
other variable lease paymentsunless those paymentsare in-substancefixed
payments. The lessee and lessorwould measure variable lease paymentsthat
depend on an index or a rate using the index or rate as at the commencement date.
A lessee would reassess the measurement of the lease liability, and a lessor would reassess
the measurement of the lease receivable, if either of the following occurs:
(a) there is a change in relevant factors that would result in a change in the lease term
(as described in paragraph B6); or
(b) there is a change in an index or a rate used to determine lease payments.
Question 5: lease term
Do you agree with the proposals on lease term, including the reassessment of the lease
term if there is a change in relevant factors? Why or why not? If not, how do you
propose that a lessee and a lessor should determine the lease term and why?
Question 6: variable lease payments
Do you agree with the proposals on the measurement of variable lease payments,
including reassessment if there is a change in an index or a rate used to determine lease
payments? Why or why not? If not, how do you propose that a lessee and a lessor should
account for variable lease payments and why?
Transition
Question 7: transition
Paragraphs C2–C22 state that a lessee and a lessor would recognise and measure leases
at the beginning of the earliest period presented using either a modified retrospective
approach or a full retrospective approach.Do you agree with those proposals? Why or
why not? If not, what transition requirements do you propose and why?
Are there any additional transition issues the boards should consider? If yes, what are
they and why?
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Disclosure
Question 8: disclosure
Paragraphs 58–67 and 98–109 set out the disclosure requirements for a lessee and a
lessor.Those proposals include maturity analyses of undiscounted lease payments;
reconciliations of amounts recognised in the statement of financial position; and
narrative disclosures about leases (including information about variable lease payments
and options).Do you agree with those proposals? Why or why not? If not, what changes
do you propose and why?
Nonpublic entities (FASB-only)
Question 9 (FASB-only): nonpublic entities
To strive for a reasonable balance between the costs and benefits of information,the FASB decided to
provide the following specified reliefs for nonpublic entities:
(a) To permit a nonpublic entity to make an accounting policy election to use a risk-free
discount rate to measure the lease liability.If an entity elects to use a risk-free discount rate,
that fact should be disclosed.
(b) To exempt a nonpublic entity from the requirement to provide a reconciliation of the
opening and closing balance of the lease liability.
Will these specified reliefs for nonpublic entities help reduce the cost of implementing the new lease
accounting requirements without unduly sacrificing information necessary for users of their financial
statements? If not,what changes do you propose and why?
Related party leases (FASB-only)
The FASB decided that the recognition and measurement requirements for all leases should be applied by
lessees and lessors that are related parties based on the legally enforceable terms and conditions of the
lease,acknowledging that some related party transactions are not documented and/or the terms and
conditions are notat arm’s length.In addition,lessees and lessors would be required to apply the
disclosure requirements for related party transactions in Topic 850,Related Party Disclosures.Under
existing US GAAP,entities are required to account for leases with related parties on the basis oftheir
economic substance,which may be difficult when there are no legally enforceable terms and conditions of
the agreement.
Question 10 (FASB-only): related party leases
Do you agree that it is not necessary to provide different recognition and measurement requirements
for related party leases (for example,to require the lease to be accounted for based on the economic
substance of the lease rather than the legally enforceable terms and conditions)? If not,what different
recognition and measurement requirements do you propose and why?
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Question 11 (FASB-only): related party leases
Do you agree that it is not necessary to provide additional disclosures (beyond those required by
Topic 850) for related party leases? If not,what additional disclosure requirements would you
propose and why?
IAS 40 Investment Property
Question 12 (IASB-only): Consequential amendments to IAS 40
The IASB is proposing amendments to other IFRSs as a result of the proposals in this
revised Exposure Draft, including amendments to IAS 40Investment Property. The
amendments to IAS 40 propose that a right-of-use asset arising from a lease of property
would be within the scope of IAS 40 if the leased property meets the definition of
investment property.This would represent a change from the current scope of IAS 40,
which permits, but does not require, property held under an operating lease to be
accounted for as investment property using the fair value model in IAS 40 if it meets the
definition of investment property.
Do you agree that a right-of-use asset should be within the scope of IAS 40 if the leased
property meets the definition of investment property? If not, what alternative would
you propose and why?
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[Draft] International Financial Reporting Standard X
Leases
Introduction
1 This [draft]Standard specifiesthe accounting forleases. The core
principle of this [draft]Standard is that an entity shall recognise assets
and liabilities arising from a lease.
2 An entity shall consider the terms and conditions of the contract and all related
facts and circumstances when applying this [draft]Standard. An entity shall
apply this [draft] Standard consistently to leases with similar characteristics and
in similar circumstances.
Objective
3 The objective of this [draft] Standard is to establish the principles thatlesseesand
lessorsshall apply to report useful information to users of financial statements
about the amount, timing and uncertainty of cash flows arising from alease.
Scope
4 An entity shall apply this [draft] Standard to all leases as defined in paragraph 6,
including leases ofright-of-use assetsin a sublease, except for the following:
(a) leasesof intangible assetsfor lessors(see [draft]IFRS X Revenuefrom
Contracts with Customers).1
(b) leasesto explore for or use minerals, oil, natural gas and similar
non-regenerative resources (see IFRS 6Exploration forand Evaluation of
Mineral Resources).
(c) leases of biological assets (see IAS 41Agriculture).
(d) service concession arrangements within the scope ofIFRIC 12 Service
Concession Arrangements.
5 A lessee need not apply this [draft] Standard to leases of intangible assets.
Identifying a lease
6 A lease is acontractthat conveys the right to use an asset (theunderlying asset) for
a period of time in exchange for consideration.
7 At inception of a contract,an entity shall determine whetherthat
contract is or contains a lease by assessing both of the following:
(a) whether fulfilmentof the contractdepends on the use ofan
identified asset (as described in paragraphs 8–11); and
1 Any references in this document to [draft]IFRS X Revenue from Contracts with Customersrefer to the
Exposure DraftRevenue from Contracts with Customerspublished by the IASB in November 2011.
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(b) whether the contract conveys the right to control the use of the
identified asset for a period of time in exchange for consideration
(as described in paragraphs 12–19).
Fulfilment of the contract depends on the use of an
identified asset
8 An asset would typically be identified by being explicitly specified in a contract.
However, even if an asset is explicitly specified, fulfilment of a contract does not
depend on the use ofan identified assetif the supplier (ie the entity that
provides the good or service under the contract)has the substantive right to
substitute the asset throughout the term of the contract.In contrast, even if an
assetis not explicitly specified in a contract,fulfilment of the contractcan
depend on the use of an identified assetif the supplier does not have a
substantive right to substitute the asset.
9 A supplier’s right to substitute an asset is substantive if both of the following
conditions are met:
(a) the supplier can substitute alternative assets in place of the asset without
requiring the consent ofthe customer (ie the entity that receives the
good or service under the contract); and
(b) there are no barriers (economic or otherwise)that would prevent the
supplier from substituting alternative assets in place of the asset during
the term of the contract.Examples of such barriers include, but are not
limited to, the following:
(i) costs associated with substituting the asset that are so high that
they create an economic disincentive to substituting alternative
assets during the term of the contract; and
(ii) operationalbarriers thatwould preventor deter the supplier
from substituting the asset (for example,alternative assets are
neither readily availableto the supplier nor could they be
sourced by the supplier within a reasonable time period or
without incurring significant costs).
10 Fulfilment of a contract can depend on the use of an identified asset even if a
supplier has the right or obligation to substitute other assets in place of the
underlying asset if the asset is not operating properly or a technical upgrade
becomes available.In addition, fulfilment of a contract can depend on the use of
an identified asset even if a supplier has the right or obligation to substitute
other assets for any reason only on or after a particular date.In this case,
fulfilment of the contract can depend on the use of an identified asset until the
date that the right or obligation to substitute becomes effective.
11 A physically distinct portion of an asset (for example, a floor of a building) can
be an identified asset.However,a capacity portion of an asset (for example,a
capacity portion of a fibre-optic cable that is less than substantially all of the
capacity of the cable)cannot be an identified asset because it is not physically
distinct from the remaining capacity of the asset.
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Contract conveys the right to control the use of an
identified asset
12 A contract conveysthe right to control the use of an identified assetif,
throughout the term of the contract, the customer has the ability to do both of
the following:
(a) direct the use of the identified asset (as described in paragraphs 13–17);
and
(b) derive the benefitsfrom use of the identified asset(as described in
paragraphs 18–19).
Ability to direct the use
13 A customer has the ability to directthe use of an assetwhen the contract
conveys rights that give the customer the ability to make decisions about the use
of the asset that most significantly affect the economic benefits to be derived
from use of the asset throughout the term of the contract.
14 Examples of decisions that could most significantly affect the economic benefits
to be derived from use of an asset include, but are not limited to, determining or
being able to change any of the following:
(a) how and for what purpose the asset is employed during the term of the
contract;
(b) how the asset is operated during the term of the contract; and
(c) the operator of the asset.
15 In some contracts for which there are few,if any, substantive decisions to be
made about the use of an asset after thecommencement date, a customer’s ability
to direct the use of the asset may be obtained at or before that date. For example,
a customer may be involved in designing the asset for its use or in determining
the terms and conditions of the contract, so that the decisions about the use of
the asset that most significantly affect the economic benefits to be derived from
use are predetermined.In those cases, the customer has the ability to direct the
use of the asset throughout the term of the contract as a result of the decisions
that it made at or before the commencement of the contract.
16 A contract may include clauses that restrict a customer’s use of an asset;for
example,a contract may specify the maximum amount of use of an asset to
protect the supplier’s interest in the asset.Such protective rights that restrict a
customer’s use of an asset would not,in isolation,prevent the customer from
having the ability to direct the use of the asset.
17 Rights that give a customer the ability to specify the output ofan asset (for
example,the quantity and description ofgoods or services produced by the
asset) would not, in isolation, mean that a customer has the ability to direct the
use of that asset. The ability to specify the output, without any other
decision-making rights relating to the use of the asset, gives a customer the same
rights as any customer that purchases services.
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Ability to derive the benefits from use
18 A customer’s ability to derive the benefits from use of an asset refers to its right
to obtain substantially allof the potentialeconomic benefits from use of the
asset throughout the term of the contract.A customer can obtain economic
benefits from use of an asset directly or indirectly in many ways,such as by
using, consuming, holding or sub-leasing the asset.The economic benefits from
use of an assetinclude its primary output and by-productsin the form of
products and services.Those economic benefits also include other economic
benefitsfrom use of the asset that could be realised from a commercial
transaction with a third party.
19 A customer does not have the ability to derive the benefits from use of an asset if
both of the following occur:
(a) the customer can obtain the benefitsfrom use of the assetonly in
conjunction with additional goods or services that are provided by the
supplier and not sold separately by the supplier or other suppliers; and
(b) the asset is incidental to the delivery of services because the asset has
been designed to function only with the additionalgoods or services
provided by the supplier.In such cases, the customer receives a bundle
of goods or services that combine to deliver an overall service for which
the customer has contracted.
Separating components of a contract
20 After determining that a contract contains a lease in accordance with
paragraphs 6–19, an entity shall identify each separate lease component within
the contract.An entity shall consider the right to use an asset to be a separate
lease component if both of the following criteria are met:
(a) the lessee can benefit from use of the asset either on its own or together
with other resources that are readily available to the lessee.Readily
available resources are goods or services that are sold or leased separately
(by the lessor or other suppliers) or resources that the lessee has already
obtained (from the lessor or from other transactions or events); and
(b) the underlying asset is neither dependent on,nor highly interrelated
with, the other underlying assets in the contract.
21 An entity shall account for each lease component as a separate lease, separately
from non-lease components ofa contract,except as described in paragraphs
23(b)(ii)and 23(c).An entity shall allocate the consideration in the contract to
each separate lease componentthat has been identified in accordance with
paragraphs 22–24.
Lessor
22 After identifying the lease componentsin a contract in accordance with
paragraph 20, a lessor shall allocate the consideration in the contract using the
requirements in paragraphs 70–76 of [draft]IFRS X Revenue from Contracts with
Customers.
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Lessee
23 After identifying the lease componentsin a contract in accordance with
paragraph 20, a lessee shall allocate the consideration in the contract as follows:
(a) if there are observablestand-alonepricesfor each componentof the
contract, a lessee shall allocate the consideration to each component on
the basis of the relative stand-alone price of each component.
(b) if there are observable stand-alone prices for one or more, but not all, of
the componentsof the contract,a lessee shallallocate both of the
following:
(i) the stand-alone price of each component to the components of
the contract with observable prices; and
(ii) the remaining consideration in the contract to the components
of the contract without observable prices.If one or more of the
components without observable prices is a lease component, the
lessee shall combine those components and account for them as a
single lease component.
(c) if there are no observable stand-alone prices for any components of the
contract, a lessee shall combine the components and account for them as
a single lease component.
24 A price is observable if it is the price that either the lessor or similar suppliers
charge for similar lease, good or service components on a stand-alone basis.
Lease term (paragraphs B2–B6)
25 An entity shall determine thelease termas the non-cancellable period of the lease,
together with both of the following:
(a) periods covered by an option to extend the lease ifthe lessee has a
significant economic incentive to exercise that option; and
(b) periods covered by an option to terminate the lease if the lessee has a
significant economic incentive not to exercise that option.
26 At the commencement date, an entity shall consider contract-based, asset-based,
entity-based and market-based factors when assessing whether a lessee has a
significant economic incentive either to exercise an option to extend a lease, or
not to exercise an option to terminate a lease,as described in paragraph B5.
Those factors shall be considered together and the existence of any one factor
does not necessarily signify that a lessee has a significant economic incentive to
exercise, or not to exercise, the option.
27 An entity shall reassess the lease term only if either of the following occurs:
(a) there is a change in relevant factors, as described in paragraph B6, that
would result in the lessee having or no longer having a significant
economic incentive either to exercise an option to extend the lease or
not to exercisean option to terminate the lease. A change in
market-based factors (such as market rates to lease a comparable asset)
shall not, in isolation, trigger reassessment of the lease term.
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(b) the lessee does either of the following:
(i) elects to exercise an option even though the entity had previously
determined that the lessee did not have a significant economic
incentive to do so; or
(ii) does not elect to exercise an option even though the entity had
previously determined that the lessee had a significant economic
incentive to do so.
Classification of leases
28 At the commencement date, an entity shall classify a lease as either a Type
A lease or a Type B lease.An entity shall not reassess the classification
after the commencement date.
29 If the underlying asset is notproperty, an entity shall classify a lease as a Type A
lease unless one of the following two criteria is met:
(a) the lease term is for an insignificant part of the totaleconomic lifeof the
underlying asset; or
(b) the present value of thelease paymentsis insignificant relative to the fair
value of the underlying asset at the commencement date.
If either criterion above is met, the lease is classified as a Type B lease.
30 If the underlying asset is property, an entity shall classify a lease as a Type B lease
unless one of the following two criteria is met:
(a) the lease term is for the major part of the remaining economic life of the
underlying asset; or
(b) the present value of the lease payments accounts for substantially all of
the fair value of the underlying asset at the commencement date.
If either criterion above is met, the lease is classified as a Type A lease.
31 Notwithstanding the requirements in paragraphs 29–30, a lease is classified as a
Type A lease if a lessee has a significant economic incentive to exercise an option
to purchase the underlying asset.
32 If a lease component contains the right to use more than one asset,an entity
shall determine the nature of the underlying asset on the basis of the nature of
the primary assetwithin the lease component. An entity shall regard the
economic life of the primary asset to be the economic life of the underlying asset
when applying the classification criteria in paragraphs 29–30.
33 Notwithstanding the requirementsin paragraph 32, if a lease component
contains both land and a building, an entity shall regard the economic life of the
building to be the economic life ofthe underlying asset when applying the
classification criteria in paragraph 30.
34 When classifying a sublease, an entity shall evaluate the sublease with reference
to the underlying asset (for example, the item of property, plant or equipment
that is the subject of the lease),rather than with reference to the right-of-use
asset.
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35 A lessee shall not classify a lease as a Type A or a Type B lease if it chooses to
measure the right-of-use asset in accordance with paragraph 52 or paragraph 53.
Such a lease shallbe treated as a Type A lease when applying the applicable
presentation and disclosure requirements.
Contract modifications
36 If the contractual terms and conditions of a lease are modified,resulting in a
substantive change to the existing lease, an entity shall account for the modified
contract as a new contract at the date that the modifications become effective.
An entity shall recognise any difference between the carrying amounts of the
assets and liabilities arising from the previous lease and those arising from any
new lease in profit or loss.Examples of a substantive change arising from a
contract modification include changes to the contractual lease term or to the
amount of contractual lease payments that were not part of the original terms
and conditions of the lease.
Lessee
Recognition
37 At the commencement date,a lessee shall recognise a right-of-use asset
and alease liability.
Measurement
Initial measurement
38 At the commencement date, a lessee shall measure both of the following:
(a) the lease liability atthe presentvalue of the lease payments
discounted using therate the lessor charges the lessee. If that rate
cannot be readily determined,the lessee shall use itsincremental
borrowing rate(as described in paragraphs B7–B9).
(b) the right-of-use asset as described in paragraph 40.
Initial measurement of the lease payments included in the lease liability
39 At the commencement date,the lease payments included in the lease liability
shall consist of the following payments relating to the use of the underlying
asset during the lease term (as described in paragraph 25) that are not yet paid:
(a) fixed payments, less any lease incentives receivable from the lessor;
(b) variable lease paymentsthat depend on an index or a rate (such as the
Consumer Price Index or a market interest rate), initially measured using
the index or rate as at the commencement date;
(c) variable lease payments that are in-substance fixed payments;
(d) amounts expected to be payableby the lesseeunder residualvalue
guarantees;
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(e) the exercise price ofa purchase option ifthe lessee has a significant
economic incentive to exercise thatoption (assessed considering the
factors described in paragraph B5); and
(f) payments for penalties for terminating the lease,if the lease term (as
determined in accordance with paragraph 25) reflects the lessee
exercising an option to terminate the lease.
Initial measurement of the right-of-use asset
40 At the commencement date, the cost of the right-of-use asset shall consist of all
of the following:
(a) the amount of the initial measurement of the lease liability;
(b) any lease payments made to the lessor at or before the commencement
date, less any lease incentives received from the lessor; and
(c) any initialdirect costsincurred by the lessee (as described in paragraphs
B10–B11).
Subsequent measurement
41 After the commencementdate,a lessee shall measure both of the
following:
(a) the lease liability by increasing the carrying amount to reflect the
unwinding of the discount on the lease liability and reducing the
carrying amount to reflect the lease payments made during the
period.The lessee shall determine the unwinding of the discount
on the lease liability in each period during the lease term as the
amount that produces a constant periodic discount rate on the
remaining balance of the liability,taking into consideration the
reassessment requirements in paragraph 43; and
(b) the right-of-use asset at cost less any accumulated amortisation
and any accumulated impairment losses, taking into
consideration the reassessmentrequirements in paragraph 43,
unless paragraph 52 or paragraph 53 applies.
42 After the commencement date,a lessee shall recognise in profit or loss,unless
the costs are included in the carrying amount of another asset in accordance
with other applicable Standards, all of the following:
(a) for Type A leases, the unwinding of the discount on the lease liability as
interest and the amortisation of the right-of-use asset.
(b) for Type B leases,a single lease cost,combining the unwinding of the
discount on the lease liability with the amortisation of the right-of-use
asset, calculated so that the remaining cost of the lease (as described in
paragraphs B15–B16)is allocated over the remaining lease term on a
straight-line basis.However, the periodic lease cost shall not be less than
the periodic unwinding of the discount on the lease liability.
(c) variable lease payments not included in the lease liability in the period
in which the obligation for those payments is incurred.
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Reassessment of the lease liability
43 After the commencement date,a lessee shallremeasure the lease liability to
reflect changes to the lease payments as described in paragraph 44 and changes
to the discount rate as described in paragraphs 45–46.A lessee shall recognise
the amount of the remeasurement of the lease liability as an adjustment to the
right-of-use asset, except as follows:
(a) a lessee shall identify the amount of the remeasurement arising from a
change in an index or a rate (as described in paragraph 44(d))that is
attributable to the current period and shallrecognise that amount in
profit or loss.
(b) if the carrying amount of the right-of-use asset is reduced to zero, a lessee
shall recognise any remaining amount of the remeasurement in profit or
loss.
44 A lessee shallreassess the lease payments ifthere is a change in any ofthe
following:
(a) the lease term,as described in paragraph 27.A lessee shall determine
the revised lease payments on the basis of the revised lease term.
(b) relevant factors that result in the lessee having or no longer having a
significanteconomic incentive to exercise an option to purchase the
underlying asset,assessed in accordance with paragraph B6.A lessee
shall determine the revised lease paymentsto reflect the change in
amounts payable under the purchase option.
(c) the amounts expected to be payable under residual value guarantees.A
lessee shall determine the revised lease payments to reflect the change in
amounts expected to be payable under residual value guarantees.
(d) an index or a rate used to determine lease paymentsduring the
reporting period. A lessee shall determine the revised lease payments
using the index or rate as at the end of the reporting period.
45 A lessee shallreassess the discountrate if there is a change in any of the
following, unless the possibility ofchange was reflected in determining the
discount rate at the commencement date:
(a) the lease term;
(b) relevant factors that result in the lessee having or no longer having a
significanteconomic incentive to exercise an option to purchase the
underlying asset; or
(c) a reference interest rate, if variable lease payments are determined using
that rate.
46 A lessee shall determine the revised discount rate at the date of reassessment as
the rate the lessor would charge the lessee at that date (or,if that rate is not
readily determinable,the lessee’s incremental borrowing rate at that date)on
the basis of the remaining lease term.
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Amortisation of the right-of-use asset
Type A leases
47 For Type A leases, a lessee shall amortise the right-of-use asset on a straight-line
basis,unless another systematic basis is more representative of the pattern in
which the lessee expects to consume the right-of-use asset’s future economic
benefits.
48 A lessee shall amortise the right-of-use asset from the commencement date to
the earlier of the end of theusefullifeof the right-of-use asset or the end of the
lease term. However,if the lessee hasa significant economic incentive to
exercise a purchase option, the lessee shall amortise the right-of-use asset to the
end of the useful life of the underlying asset.
49 Subject to the requirements in paragraphs 47–48, a lessee shall otherwise apply
the depreciation requirementsin IAS 16 Property,Plantand Equipmentwhen
amortising the right-of-use asset.
Type B leases
50 For Type B leases,a lessee shall determine the amortisation of the right-of-use
asset for the period as the difference between the following:
(a) the periodic lease cost, determined in accordance with paragraph 42(b);
and
(b) the periodic unwinding of the discount on the lease liability, determined
in accordance with paragraph 41(a).
Impairment of the right-of-use asset
51 A lessee shalldetermine whether the right-of-use asset is impaired and shall
recognise any impairment loss in accordance with IAS 36Impairment of Assets.
Alternative measurement bases for the right-of-use asset
52 A lessee shall measureright-of-useassetsarising from leased propertyin
accordance with the fair value model in IAS 40 if the leased property meets the
definition of investmentpropertyand the lessee elects the fair value modelin
IAS 40 as an accounting policy.
53 A lessee may measure right-of-use assets relating to a class of property, plant and
equipment at a revalued amount in accordance with IAS 16 if the lessee revalues
all assets within that class of property, plant and equipment.
Presentation
54 A lessee shall either present in the statement of financial position or disclose in
the notes all of the following:
(a) right-of-use assets separately from other assets;
(b) lease liabilities separately from other liabilities;
(c) right-of-use assets arising from Type A leases separately from right-of-use
assets arising from Type B leases and right-of-use assets measured at
revalued amounts; and
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(d) lease liabilities arising from Type A leases separately from lease liabilities
arising from Type B leases.
55 If a lessee does not present right-of-use assets and lease liabilities separately in
the statement of financial position, the lessee shall do both of the following:
(a) present right-of-use assets within the same line item as the
corresponding underlying assets would be presented if they were owned;
and
(b) disclose which line items in the statement of financial position include
right-of-use assets and lease liabilities.
56 In the statement of profit or loss and other comprehensive income, a lessee shall
present both of the following:
(a) for Type A leases,the unwinding of the discount on the lease liability
separately from the amortisation of the right-of-use asset.
(b) for Type B leases,the unwinding of the discount on the lease liability
together with the amortisation of the right-of-use asset.
57 In the statement of cash flows a lessee shall classify the following:
(a) repayments of the principalportion of the lease liability arising from
Type A leases within financing activities;
(b) the unwinding of the discount on the lease liability arising from Type A
leases in accordance with the requirements relating to interest paid in
IAS 7 Statement of Cash Flows;
(c) payments arising from Type B leases within operating activities; and
(d) variable lease payments andshort-term leasepayments not included in the
lease liability within operating activities.
Disclosure
58 The objectiveof the disclosurerequirementsis to enable users of
financial statements to understand the amount,timing and uncertainty
of cash flows arising from leases.To achieve that objective, a lessee shall
disclosequalitativeand quantitativeinformation about all of the
following:
(a) its leases (as described in paragraphs 60(a) and 60(b));
(b) the significant judgements made in applying the [draft] Standard
to those leases (as described in paragraph 60(c)); and
(c) the amounts recognised in the financialstatements relating to
those leases (as described in paragraphs 61–67).
59 A lessee shallconsider the levelof detail necessary to satisfy the disclosure
objective and how much emphasis to place on each of the various requirements.
A lessee shall aggregate or disaggregate disclosures so that useful information is
not obscured by including a large amount of insignificant detail or by
aggregating items that have different characteristics.
60 A lessee shall disclose the following:
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(a) information about the nature of its leases, including:
(i) a general description of those leases;
(ii) the basis,and terms and conditions,on which variable lease
payments are determined;
(iii) the existence, and terms and conditions, of options to extend or
terminate the lease.A lessee shall provide narrative disclosure
about the options that are recognised as part of the right-of-use
asset and lease liability and those that are not;
(iv) the existence,and terms and conditions, of residual value
guarantees provided by the lessee; and
(v) the restrictionsor covenantsimposed by leases,for example
those relating to dividendsor incurring additional financial
obligations.
A lessee shall identify the information relating to subleases included in
the disclosures provided above.
(b) information about leases that have not yet commenced but that create
significant rights and obligations for the lessee.
(c) information aboutsignificantassumptionsand judgementsmade in
applying the [draft] Standard, which may include the following:
(i) the determination ofwhether a contractcontainsa lease (as
described in paragraphs 6–19);
(ii) the allocation of the consideration in a contract between lease
and non-lease components (as described in paragraphs 23–24);
and
(iii) the determination of the discount rate (as described in
paragraphs B7–B9).
61 A lessee shall disclose a reconciliation ofopening and closing balancesof
right-of-use assets by class of underlying asset separately for Type A leases, Type B
leases and right-of-useassets measured at revalued amounts. Those
reconciliations shall include items that are useful in understanding the change
in the carrying amount of right-of-use assets, for example, the following:
(a) additions due to leases commencing or being extended;
(b) reclassifications when a lessee exercises a purchase option;
(c) reductions due to leases being terminated;
(d) remeasurements relating to a change in an index or a rate used to
determine lease payments;
(e) amortisation;
(f) effects of business combinations; and
(g) impairment.
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62 A lessee thatmeasures its right-of-use assets arising from leased investment
property in accordance with the fair value modelin IAS 40 (as described in
paragraph 52) may elect not to provide the disclosure required by paragraph 61
for those right-of-use assets.
63 If a lessee measures right-of-use assets atrevalued amounts,the lessee shall
disclose:
(a) the effective date of the revaluation; and
(b) the amount of the revaluation surplus that relates to right-of-use assets
at the start and end of the reporting period,indicating the changes
during the period and any restrictions on the distribution of the balance
to shareholders.
64 A lessee shall disclose a reconciliation of opening and closing balances of the
lease liability separatelyfor Type A leases and Type B leases. Those
reconciliations shall include the periodic unwinding of the discount on the lease
liability and other items that are usefulin understanding the change in the
carrying amount of the lease liability, for example, the following:
(a) liabilities created due to leases commencing or being extended;
(b) liabilities extinguished due to leases being terminated;
(c) remeasurements relating to a change in an index or a rate used to
determine lease payments;
(d) cash paid;
(e) foreign currency exchange differences; and
(f) effects of business combinations.
65 A lessee shall disclose costs that are recognised in the period relating to variable
lease payments not included in the lease liability.
66 A lessee shall disclose information about the acquisition of right-of-use assets in
exchange for lease liabilities, arising from both Type A leases and Type B leases,
as a supplemental non-cash transaction disclosure (see IAS 7).
67 In place of the maturity analyses required by paragraphs 39(a) and 39(b) of IFRS 7
FinancialInstruments:Disclosures, a lessee shall disclose a maturity analysis of the
lease liability,showing the undiscounted cash flows on an annual basis for a
minimum of each of the first five years and a totalof the amounts for the
remaining years.A lessee shallreconcile the undiscounted cash flows to the
lease liability recognised in the statement of financial position.
Lessor
Type A leases
Recognition
68 At the commencement date, a lessor shall do all of the following:
(a) derecognisethe carrying amountof the underlying asset(if
previously recognised);
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(b) recognise alease receivable;
(c) recognise aresidual asset; and
(d) recognise any resulting profit or loss on the lease in profit or loss
(as described in paragraph 74).
Measurement
Initial measurement
69 At the commencement date, a lessor shall measure both of the following:
(a) the lease receivable at the present value of the lease payments,
discounted usingthe rate the lessor chargesthe lessee(as
described in paragraphs B8–B9),plus any initialdirect costs (as
described in paragraphs B10–B11); and
(b) the residual asset as described in paragraph 71.
Initial measurement of the lease payments included in the lease
receivable
70 At the commencement date, the lease payments included in the lease receivable
shall consist of the following payments relating to the use of the underlying
assetduring the lease term (as described in paragraph 25)that are not yet
received:
(a) fixed payments, less any lease incentives payable to the lessee;
(b) variable lease payments that depend on an index or a rate (such as the
Consumer Price Index or a market interest rate), initially measured using
the index or rate as at the commencement date;
(c) variable lease payments that are in-substance fixed payments;
(d) lease payments structured as residual value guarantees (as described in
paragraphs B17–B18);
(e) the exercise price ofa purchase option ifthe lessee has a significant
economic incentive to exercise thatoption (assessed considering the
factors described in paragraph B5); and
(f) payments for penalties for terminating the lease,if the lease term (as
determined in accordance with paragraph 25) reflects the lessee
exercising an option to terminate the lease.
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Initial measurement of the residual asset
71 At the commencement date, a lessor shall measure the residual asset as follows:
A + B – C
A = the present value of the amount the lessor expects to derive from the
underlying asset following the end of the lease term, discounted using
the rate the lessor charges the lessee (gross residual asset).
B = the present value of expected variable lease payments (as described in
paragraph 72).
C = any unearned profit, determined in accordance with paragraphs 73–75.
Variable lease payments included in the rate the lessor charges the
lessee
72 If a lessor reflects an expectation of variable lease payments in determining the
rate the lessor charges the lessee and those payments are not included in the
lease receivable,the lessor shall include in the initial measurementof the
residual asset the present value of variable lease payments expected to be earned
during the lease term, discounted using the rate the lessor charges the lessee.
Profit
73 If the fair value of the underlying asset is greater than its carrying amount
immediatelybefore the commencementdate, a lessor shall allocate that
difference between profit relating to the lease, which the lessor recognises at the
commencementdate,and unearned profit,which is included in the initial
measurement of the residual asset.
74 A lessor shall calculate the profit relating to the lease recognised atthe
commencement date as the difference between the fair value and the carrying
amount of the underlying asset immediately before the commencement date,
multiplied by the present value of the lease payments (discounted using the rate
the lessor charges the lessee), divided by the fair value of the underlying asset.
75 A lessor shall determine the unearned profit included in the initial
measurement of the residual asset as the difference between the fair value and
the carrying amount of the underlying asset immediately before the
commencement date, less the profit recognised at the commencement date.
Subsequent measurement
76 After the commencementdate,a lessor shall measure both of the
following:
(a) the lease receivable by increasing the carrying amount to reflect
the unwinding of the discount on the lease receivableand
reducing the carrying amount to reflect the lease payments made
during the period.A lessor shall determine the unwinding of the
discount on the lease receivable in each period during the lease
term as the amount that produces a constant periodic discount
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rate on the remaining balance ofthe receivable,taking into
consideration the reassessment and impairment requirements in
paragraphs 78 and 84; and
(b) the residual asset at its initial carrying amount plus the
unwinding of the discountin accordance with paragraph 82,
taking into consideration therequirementson reassessment,
variable lease payments and impairment in paragraphs 78, 83 and
85.
77 After the commencement date,a lessor shall recognise all of the following in
profit or loss:
(a) the unwinding of the discount on the lease receivable as interest income;
(b) the unwinding of the discount on the gross residualasset as interest
income; and
(c) variable lease payments that are not included in the lease receivable in
the periods in which that income is earned.
Reassessment of the lease receivable
78 After the commencement date,a lessor shall remeasure the lease receivable to
reflect changes to the lease payments as described in paragraph 79 and changes
to the discount rate as described in paragraphs 80–81.A lessor shall do both of
the following:
(a) adjust the carrying amount of the residual asset to reflect the amount
the lessor expects to derive from the underlying asset following the end
of the revised lease term, if there is a change in the lease term or in the
assessmentof whether the lessee has or no longer has a significant
economic incentive to exercise a purchase option, as described in
paragraphs 79(a) and 79(b); and
(b) recognise any difference between the carrying amountsof the lease
receivable and residualassetbefore and after the remeasurementin
profit or loss.
79 A lessor shallreassess the lease payments ifthere is a change in any ofthe
following:
(a) the lease term,as described in paragraph 27.A lessor shall determine
the revised lease payments on the basis of the revised lease term;
(b) relevant factors that result in the lessee having or no longer having a
significanteconomic incentive to exercise an option to purchase the
underlying asset,assessed in accordance with paragraph B6.A lessor
shall determine the revised lease paymentsto reflect the change in
amounts receivable under a purchase option; and
(c) an index or a rate used to determine lease paymentsduring the
reporting period. A lessor shalldetermine the revised lease payments
using the index or rate as at the end of the reporting period.
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80 A lessor shall reassess the discountrate if there is a change in any of the
following, unless the possibility ofchange was reflected in determining the
discount rate at the commencement date:
(a) the lease term;
(b) relevant factors that result in the lessee having or no longer having a
significanteconomic incentive to exercise an option to purchase the
underlying asset; or
(c) a reference interest rate, if variable lease payments are determined using
that rate.
81 A lessor shall determine the revised discount rate at the date of reassessment as
the rate the lessor would charge the lessee at that date on the basis ofthe
remaining lease term.
Subsequent measurement of the residual asset
82 After the commencement date, a lessor shall increase the carrying amount of the
residual asset in each period to account for the effect of the unwinding of the
discount on the gross residual asset, using the rate the lessor charges the lessee.
83 If a lessor includes variable lease payments in the initial measurement of the
residual asset in accordance with paragraph 72,the lessor shall derecognise a
portion of the carrying amount of the residual assetin each period and
recognise a corresponding expense in profit or loss.The lessor shall determine
the portion to derecognise on the basis of the variable lease payments expected
to be earned in the period (as described in paragraphs B19–B21).
Impairment of the lease receivable and the residual asset
84 A lessor shall determine whether the lease receivable is impaired and shall
recognise any impairmentin accordance with IAS 39 FinancialInstruments:
Recognition and Measurement.2 When determining the loss allowance for a lease
receivable,a lessor shalltake into consideration the collateralrelating to the
receivable.The collateralrelating to the receivable represents the cash flows
that the lessor would expect to derive from the underlying asset during the
remaining lease term,which excludes the cash flows thatthe lessor would
expect to derive from the underlying asset following the end of the lease term.
85 A lessor shall apply IAS 36 to determine whether the residual asset is impaired,
taking into consideration any residual value guaranteesrelating to the
underlying asset when assessing impairment of the residual asset.A lessor shall
recognise any impairment loss in profit or loss in accordance with IAS 36.
Accounting for the underlying asset at the end of the lease term or on
termination of a lease
86 At the end of the lease term,a lessor shall reclassify the residual asset to the
appropriate category of asset (for example,property,plant and equipment)in
2 The Exposure DraftFinancialInstruments:Expected CreditLossesproposes thatlease receivables be
within the scope ofthe new impairmentrequirements thatwould supersede the impairment
requirements in IAS 39.
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accordance with applicable Standards, measured at the carrying amount of the
residual asset.The lessor shall account for the asset that was the subject of a
lease in accordance with the applicable Standard.
87 If a lease is terminated before the end of the lease term, a lessor shall do all of
the following:
(a) test the lease receivable for impairment in accordance with IAS 39 and
recognise any impairment loss identified;
(b) reclassify the lease receivable (lessany amountsstill expected to be
received by the lessor) and the residual asset to the appropriate category
of asset in accordance with applicable Standards, measured at the sum of
the carrying amountsof the lease receivable (lessany amountsstill
expected to be received by the lessor) and the residual asset; and
(c) account for the asset that was the subject of the lease in accordance with
the applicable Standard.
Presentation
88 A lessor shall present lease assets (ie the sum of the carrying amounts of lease
receivables and residual assets) separately from other assets in the statement of
financial position.
89 A lessor shall also either presentin the statementof financial position or
disclose in the notes the carrying amount of lease receivables and the carrying
amount of residual assets.
90 A lessor shall either presentin the statement of profit or loss and other
comprehensive income or disclose in the notes income arising from leases.If a
lessor does not present lease income in the statement of profit or loss and other
comprehensive income,the lessor shalldisclose which line items include the
income in the statement of profit or loss and other comprehensive income.
91 A lessor shall present any profit or loss on the lease recognised at the
commencementdate in a manner that best reflects the lessor’sbusiness
model(s).Examples of presentation include the following:
(a) if a lessor uses leases as an alternative means of realising value from the
goods that it would otherwise sell, the lessor shall present revenue and
cost of goods sold relating to its leasing activities in separate line items
so that income and expenses from sold and leased items are presented
consistently.
(b) if a lessor uses leases for the purposes of providing finance,the lessor
shall present the profit or loss in a single line item.
92 In the statement of cash flows,a lessor shallclassify cash receipts from lease
payments within operating activities.
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Type B leases
93 A lessor shall recognise lease payments as lease income in profit or loss
over the lease term on either a straight-line basis or another systematic
basis if that basis is more representative of the pattern in which income
is earned from the underlying asset.
94 A lessor shall recognise initial direct costs as an expense over the lease term on
the same basis as lease income (as described in paragraph 93).
95 A lessor shall recognise variable lease payments in profit or loss in the period in
which that income is earned.
96 A lessor shall continue to measure and present the underlying asset subject to a
Type B lease in accordance with other applicable Standards.
97 In the statement of cash flows,a lessor shallclassify cash receipts from lease
payments within operating activities.
Disclosure
98 The objectiveof the disclosurerequirementsis to enable users of
financial statements to understand the amount,timing and uncertainty
of cash flows arising from leases.To achieve that objective, a lessor shall
disclosequalitativeand quantitativeinformation about all of the
following:
(a) its leases (as described in paragraph 100(a));
(b) the significant judgements made in applying the [draft] Standard
to those leases (as described in paragraph 100(b)); and
(c) the amounts recognised in the financialstatements relating to
those leases (as described in paragraphs 101–109).
99 A lessor shall consider the levelof detail necessary to satisfy the disclosure
objective and how much emphasis to place on each of the various requirements.
A lessor shall aggregate or disaggregate disclosures so that useful information is
not obscured by including a large amount of insignificant detail or by
aggregating items that have different characteristics.
100 A lessor shall disclose the following:
(a) information about the nature of its leases, including:
(i) a general description of those leases;
(ii) the basis,and terms and conditions,on which variable lease
payments are determined;
(iii) the existence, and terms and conditions, of options to extend or
terminate the lease; and
(iv) the existence, and terms and conditions, of options for a lessee to
purchase the underlying asset.
(b) information aboutsignificantassumptionsand judgementsmade in
applying the [draft] Standard, which may include the following:
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(i) the determination ofwhether a contractcontainsa lease (as
described in paragraphs 6–19);
(ii) the allocation of the consideration in a contract between lease
and non-lease components (as described in paragraph 22); and
(iii) the initial measurementof the residualasset(as described in
paragraph 71).
101 A lessor shalldisclose lease income recognised in the reporting period,in a
tabular format, to include the following:
(a) for Type A leases:
(i) profit or loss recognised at the commencement date (gross or net,
consistently with paragraph 91);
(ii) the unwinding of the discount on the lease receivable; and
(iii) the unwinding of the discount on the gross residual asset;
(b) for Type B leases, lease income relating to lease payments;
(c) lease income relating to variable lease payments not included in the
measurement of the lease receivable; and
(d) short-term lease income.
Disclosures relating to Type A leases
102 In addition to the disclosures required by paragraphs 100–101, a lessor shall also
provide the disclosures in paragraphs 103–107 for Type A leases.
103 A lessor shall disclose a reconciliation of the opening and closing balances of the
lease receivable.The reconciliation shallinclude items that are useful in
understanding the change in the carrying amount of the lease receivable,for
example, the following:
(a) additions due to leases commencing or being extended;
(b) receivables derecognised due to leases being terminated;
(c) cash received;
(d) the unwinding of the discount on the lease receivable;
(e) foreign currency exchange differences;
(f) effects of business combinations; and
(g) changes to the loss allowance.
104 A lessor shall disclose a reconciliation of the opening and closing balances of the
residual asset. The reconciliation shall include items that are useful in
understanding the change in the carrying amountof the residualasset,for
example, the following:
(a) additions due to leases commencing;
(b) reductions due to leases being extended;
(c) reclassifications at expiry or termination of a lease;
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(d) the unwinding of the discount on the gross residual asset;
(e) effects of business combinations; and
(f) impairment.
105 Except as described in paragraph 106, a lessor shall disclose information relating
to risks arising from leases required by paragraphs 31–42H of IFRS 7.
106 In place of the maturity analyses required by paragraph 37(a) of IFRS 7, a lessor
shall disclose a maturity analysis of the lease receivable,showing the
undiscounted cash flows to be received on an annual basis for a minimum of
each of the first five years and a total of the amounts for the remaining years.A
lessor shall reconcile the undiscounted cash flowsto the lease receivable
recognised in the statement of financial position.
107 A lessor shall disclose information about how it manages its risk associated with
residual assets.In particular, a lessor shall disclose all of the following:
(a) its risk management strategy for residual assets;
(b) the carrying amount of residual assetscovered by residual value
guarantees (excluding guarantees considered to be lease payments for
the lessor, as described in paragraph 70(d)); and
(c) any other means by which the lessor reduces its residual asset risk (for
example,buy-back agreements or variable lease payments for use in
excess of specified limits).
Disclosures relating to Type B leases
108 In addition to the disclosures required by paragraphs 100–101, a lessor shall also
provide the disclosures in paragraph 109 for Type B leases.
109 A lessor shall disclose a maturity analysisof lease payments,showing the
undiscounted cash flows to be received on an annual basis for a minimum of
each of the first five years and a total of the amounts for the remaining years.A
lessor shall present that maturity analysis separately from the maturity analysis
required by paragraph 106 for Type A leases.
Sale and leaseback transactions
110 If an entity (the transferor)transfers an asset to another entity (the transferee)
and leases thatassetback from the transferee,both the transferor and the
transferee shall account for the transfer contract and the lease in accordance
with paragraphs 111–117.
Determining whether the transfer of the asset is a sale
111 An entity shallapply the requirements for determining when a performance
obligation is satisfied in [draft]IFRS XRevenue from Contracts with Customerswhen
determining whether the transfer of an asset shall be accounted for as a sale of
the asset.
112 The existence of the leaseback (ie the transferor’s right to use the asset for a
period of time) does not,in isolation, prevent the transferee from obtaining
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control of the asset.However, if the leaseback provides the transferor with the
ability to direct the use of and obtain substantially all of the remaining benefits
from the asset, then the transferee does not obtain control of the asset and the
transfer is not a sale.The transferor is considered to have the ability to direct
the use of and obtain substantially all of the remaining benefits from the asset, if
either of the following occurs:
(a) the lease term is for the major part of the remaining economic life of the
asset; or
(b) the present value of the lease payments accounts for substantially all of
the fair value of the asset.
Transfer of the asset is a sale
113 If a transferee obtains control of the asset in accordance with the requirements
for determining when a performance obligation is satisfied in [draft]IFRS X
Revenue from Contracts with Customers:
(a) the transferor shallaccountfor a sale in accordance with applicable
Standards and for the lease in accordance with lessee accounting in this
[draft] Standard.
(b) the transferee shall account for a purchase in accordance with applicable
Standards and for the lease in accordance with lessor accounting in this
[draft] Standard.
114 If the consideration for the sale ofan asset is not at fair value or the lease
paymentsare not at market rates, an entity shall make the following
adjustments to recognise the sale at fair value:
(a) the transferor shall measure the right-of-use asset and the gain or loss on
disposal of the underlying asset to reflect current market rates for lease
payments for that asset.The transferor shall subsequently account for
the lease to reflect those current market rates.
(b) the transferee shall measure the lease receivable and the residual asset
for Type A leases,or the underlying asset for Type B leases,to reflect
current market rates for lease payments for that asset.The transferee
shall subsequently account for the lease to reflect those current market
rates.
Transfer of the asset is not a sale
115 If the transferee does not obtain controlof the asset in accordance with the
requirements for determining when a performance obligation is satisfied in
[draft] IFRS XRevenue from Contracts with Customers:
(a) the transferor shall not derecognise the transferred assetand shall
account for any amounts received as a financial liability in accordance
with applicable Standards; and
(b) the transferee shall not recognise the transferred asset and shall account
for the amounts paid as a receivable in accordance with applicable
Standards.
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Disclosure
116 If a transferor or a transferee enters into a sale and leaseback transaction that is
accounted for in accordance with paragraphs113–114,it shall provide the
disclosures required by paragraphs 58–67 or 98–109.
117 In addition to the disclosures required by paragraphs 58–67,a transferor that
enters into a sale and leaseback transaction shall disclose both of the following:
(a) the main terms and conditions of that transaction, and
(b) any gains or losses arising from the transaction separately from gains or
losses on disposal of other assets.
Short-term leases
118 A lessee may elect,as an accounting policy,not to apply the requirements in
paragraphs25–35 and 37–57 to short-term leases. Instead,a lessee may
recognise the lease payments in profit or loss on a straight-line basis over the
lease term.
119 A lessor may elect,as an accounting policy,not to apply the requirements in
paragraphs25–35 and 69–97 to short-term leases. Instead,a lessor may
recognise the lease payments in profit or loss over the lease term on either a
straight-line basis or another systematicbasis, if that basis is more
representative of the pattern in which income is earned from the underlying
asset.
120 The accounting policy election for short-term leases shall be made by class of
underlying asset to which the right of use relates.An entity that accounts for
short-term leases in accordance with paragraph 118 or paragraph 119 shall
disclose that fact.
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Appendix A
Defined terms
This appendix is an integral part of the [draft] Standard.
commencement date
of the lease
(commencement date)
The date on which alessormakes anunderlying assetavailable
for use by alessee.
contract An agreementbetween two or more parties that creates
enforceable rights and obligations.
economic life Either the period over which an asset is expectedto be
economically usable by one or more usersor the number of
production or similar units expected to be obtained from an asset
by one or more users.
gross residual asset The amount alessorexpects to derive from anunderlying asset
following the end of thelease term, measured on a discounted
basis.
initial direct costs Costs that are directly attributable to negotiating and arranging a
leaseand would not have been incurred without entering into
the lease.
investment property Propertyheld to earn rentals or for capital appreciation or both,
rather than for:
(a) use in the production or supply of goods or services or for
administrative purposes, or
(b) sale in the ordinary course of business.
lease A contractthat conveys the right to use an asset (theunderlying
asset) for a period of time in exchange for consideration.
lease liability A lessee’s obligation to make lease paymentsarising from a
lease, measured on a discounted basis.
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lease payments Payments made by alesseeto alessorrelating to the right to use
an underlying assetduring the lease term, consisting of the
following:
(a) fixed payments,less any lease incentivesreceived or
receivable from the lessor;
(b) variable lease paymentsthat depend on an index or a
rate, or are in-substance fixed payments;
(c) the exercise price of a purchase option if the lessee has a
significanteconomic incentive to exercise thatoption;
and
(d) payments for penalties for terminating thelease, if the
lease term reflectsthe lessee exercising an option to
terminate the lease.
For the lessee, lease payments also include amounts expected to
be payable by the lessee underresidual value guarantees. Lease
paymentsdo not include paymentsallocated to non-lease
components of acontractexcept when the lessee is required to
combine non-lease and lease components and account for them
as a single lease component.
For the lessor, lease paymentsalso include lease payments
structured as residual value guarantees.Lease payments do not
include payments allocated to non-lease components.
lease receivable A lessor’s right to receivelease paymentsarising from alease,
measured on a discounted basis.
lease term The non-cancellable period for which alesseehas the right to use
an underlying asset, together with both of the following:
(a) periods covered by an option to extend theleaseif the
lessee has a significanteconomic incentive to exercise
that option; and
(b) periods covered by an option to terminate the lease if the
lessee has a significant economic incentive not to exercise
that option.
lessee An entity that enters into acontractto obtain the right to use an
underlying asset for a period of time in exchangefor
consideration.
lessee’s incremental
borrowing rate
The rate of interest that alesseewould have to pay to borrow
over a similar term, and with a similar security,the funds
necessary to obtain an asset of a similar value to theright-of-use
assetin a similar economic environment.
lessor An entity that enters into acontractto provide the right to use
an underlying assetfor a period of time in exchange for
consideration.
property Land or a building, or part of a building, or both.
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rate implicit in the
lease
The rate of interest that,at a given date,causes the sum of the
present value of payments made by alesseefor the right to use
an underlying assetand the presentvalue of the amount a
lessor expects to derive from the underlying asset following the
end of thelease termto equal the fair value of the underlying
asset.
rate the lessor charges
the lessee
A discount rate that takes into account the nature of the
transaction as well as the terms and conditions of thelease. The
rate thelessorcharges the lessee could be, for example, therate
implicit in the lease, or the property yield.
residual asset An asset representing the rights to anunderlying assetretained
by alessorduring alease.
residual value
guarantee
A guarantee made to alessorthat the value of anunderlying
assetreturned to the lessor at the end of aleasewill be at least a
specified amount.
right-of-use asset An asset that represents alessee’sright to use anunderlying
assetfor the lease term.
short-term lease A leasethat, at the commencement date, has a maximum
possible term underthe contract, including any options to
extend, of 12 months or less.Any lease that contains a purchase
option is not a short-term lease.
stand-alone price The price at which alesseewould purchase a component of a
contractseparately.
sublease A transaction in which anunderlying assetis re-leased by the
original lessee(or ‘intermediate lessor’) to a third party, and the
lease(or ‘head lease’)between the originallessorand lessee
remains in effect.
underlying asset An asset that is the subject of alease, for which a right to use
that asset has been conveyed to alessee. The underlying asset
could be a physically distinct portion of a single asset.
useful life The period over which an asset is expected to be available for use
by an entity; or the number of production or similar units
expected to be obtained from an asset by an entity.
variable lease
payments
Payments made by alesseeto a lessorfor the right to use an
underlying assetthat vary becauseof changesin facts or
circumstances occurring after thecommencement date, other
than the passage of time.
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Appendix B
Application guidance
This appendix is an integral part of the [draft] Standard.It describes the application of paragraphs
1–120 and has the same authority as the other parts of the [draft] Standard.
B1 The application guidance gives guidance on the following topics:
(a) lease term (paragraphs B2–B4);
(b) significant economic incentive (paragraphs B5–B6);
(c) discount rate (paragraphs B7–B9);
(d) costs other than lease payments (paragraphs B10–B14);
(e) cost of a Type B lease for the lessee (paragraphs B15–B16);
(f) lease payments structured as a residual value guarantee
(paragraphs B17–B18); and
(g) variable lease payments included in the rate the lessor charges the lessee
for Type A leases (paragraphs B19–B21).
Lease term (paragraphs 25–27)
B2 An entity shall determine the non-cancellableperiod of a lease when
determining the lease term.When assessing the length of the non-cancellable
period of a lease, an entity shall apply the definition of a contract in paragraph 6
and determine the period for which the contract is enforceable.A lease is no
longer enforceable when both the lessee and the lessor each have the right to
terminate the lease without permission from the other party with no more than
an insignificant penalty.
B3 If only a lessee has the right to terminate a lease, that right is considered to be
an option to terminate the lease available to the lessee that an entity considers
when determining the lease term, as described in paragraph 25.
B4 The lease term begins at the commencement date and includes any rent-free
periods provided to the lessee by the lessor.
Significant economic incentive (paragraphs 25–27)
B5 At the commencementdate, an entity assesseswhether the lesseehas a
significanteconomic incentive to exercise,or not to exercise,an option by
considering all factors relevant to that assessment—contract-based,asset-based,
market-based and entity-based factors.An entity’s assessment will often require
the consideration of a combination of those factors becausethey are
interrelated.Examples of factors to consider include, but are not limited to, any
of the following:
(a) contractualterms and conditions for the optionalperiods compared
with current market rates, such as:
(i) the amount of lease payments in any optional period;
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(ii) the amount of any variable lease payments or other contingent
paymentssuch as paymentsunder termination penaltiesand
residual value guarantees; and
(iii) the terms and conditions of any options that are exercisable after
initial optional periods (for example, the terms and conditions of
a purchase option that is exercisable at the end of an extension
period at a rate that is currently below market rates).
(b) significant leasehold improvements that are expected to have significant
economic value for the lessee when the option to extend or terminate
the lease or to purchase the asset becomes exercisable;
(c) costs relating to the termination of the lease and the signing of a new
lease,such as negotiation costs,relocation costs,costs of identifying
another underlying assetsuitable for the lessee’s operations,or costs
associated with returning the underlying asset in a contractually
specified condition or to a contractually specified location; and
(d) the importance of that underlying assetto the lessee’soperations,
considering,for example,whether the underlying asset is a specialised
asset and the location of the underlying asset.
B6 An entity shall reassess whether the lessee has,or does not have,a significant
economic incentive to exercise, or not to exercise, an option if there is a change
in relevant factors as described in paragraph B5. However,a change in
market-based factors (such as market rates to lease a comparable asset) shall not,
in isolation, trigger reassessment.
Discount rate (paragraphs 38 and 69)
B7 The discountrate initially used to determine the presentvalue of the lease
payments for a lessee is calculated on the basis of information available at the
commencement date.
B8 The discount rate used to determine the present value of the lease payments for
a lessor is the rate the lessor charges the lessee.The rate the lessor charges the
lessee could be, for example, therate implicit in the leaseor the property yield.An
entity shall use the rate implicit in the lease as the rate the lessor charges the
lessee whenever that rate is available.
B9 Both the lessee’s incremental borrowing rate and the rate the lessor charges the
lessee reflect the nature of the transaction and the terms and conditions of the
lease; for example, the lease payments, the lease term, the security attached to
the lease, the nature of the underlying asset and the economic environment.
Costs other than lease payments
Initial direct costs (paragraphs 40 and 69)
B10 Initial direct costs are costs that are directly attributable to negotiating and
arranging a lease and would not have been incurred without entering into the
lease.Initial direct costs for a lessee or a lessor may include, for example, any of
the following:
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(a) commissions;
(b) legal fees;
(c) evaluating the prospective lessee’s financial condition;
(d) evaluating and recording guarantees,collateral and other security
contracts;
(e) negotiating lease terms and conditions;
(f) preparing and processing lease documents; and
(g) payments made to existing tenants to obtain the lease.
B11 Both of the following items are examples of costs that are not initial direct costs:
(a) general overheads, including, for example, depreciation, occupancy and
equipment costs, unsuccessful origination efforts and idle time; and
(b) costs related to activities performed by the lessor for advertising,
soliciting potentiallessees,servicing existing leases or other ancillary
activities.
Costs of the lessee relating to the construction or design of an
underlying asset
B12 An entity may negotiate a lease before the underlying asset is available for use by
the lessee.For some leases, the underlying asset may need to be constructed or
redesigned for use by the lessee.Depending on the terms and conditions of the
contract, a lessee may be required to make paymentsrelating to the
construction or design of the asset.
B13 If a lessee incurs costs relating to the construction or design of an underlying
asset, the lessee shall account for those costs in accordance with other applicable
Standards,for example IAS 2Inventoriesor IAS 16. If the lessee controls the
underlying asset before the commencement date,the transaction is a sale and
leaseback transaction thatis accounted forin accordance with paragraphs
113–114 of this [draft] Standard.
B14 Costs relating to the construction or design ofan underlying assetdo not
include payments made by the lessee for the right to use the underlying asset.
Payments for the right to use the underlying asset are lease payments, regardless
of the timing of those payments.
Cost of a Type B lease for the lessee (paragraph 42(b))
B15 For Type B leases,paragraph 42(b)requires a lessee to recognise a lease cost in
each period calculated asthe greaterof the remaining cost of the lease
(calculated at the beginning of each period)allocated over the remaining lease
term on a straight-line basis or the periodic unwinding of the discount on the
lease liability.
B16 Throughout the lease term, the remaining cost of a lease consistsof the
following:
(a) lease payments (determined at the commencement date); plus
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(b) initial direct costs (determined at the commencement date); minus
(c) the periodic lease cost recognised in prior periods; minus
(d) any impairment of the right-of-use asset recognised in prior periods; plus
or minus
(e) any adjustments to reflect changes made to the lease liability that arise
from remeasuring the liability in accordance with paragraphs 43–46.
The adjustment to the remaining cost of a lease would equal the total
change in future lease payments less any amounts recognised in profit or
loss at the date of remeasurement of the lease liability.
Lease payments structured as a residual value guarantee
(paragraph 70(d))
B17 In some contracts, a lessor not only obtains a residual value guarantee, but the
contract also states that the lessor will pay to the counterparty,or the
counterpartycan retain, any differencebetween the selling price of the
underlying asset and an amount specified in the contract.The counterparty
may or may not be the lessee.
B18 In those cases,the lessor will pay to, or receive from,the counterparty any
difference between the selling price ofan underlying assetand a specified
amount. Accordingly, the lessor receives a fixed amount for the residual asset,
which is similar to a fixed lease payment receivable at the end of the lease term.
Those guarantees are considered to be lease payments for the lessor.
Variable lease payments included in the rate the lessor
charges the lessee for Type A leases (paragraph 83)
B19 If a lessor includes variable lease payments in the initial measurement of the
residual asset in accordance with paragraph 72, paragraph 83 requires the lessor
to derecognise a portion of the carrying amount of the residual asset in each
period and recognise a corresponding expense in profit or loss.
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B20 At the commencement date, a lessor shall calculate the portion of the residual
asset to derecognise in each period on the basis of the expected variable lease
payments as follows:
A
B xC x D
E
A = the amount of variable lease payments expected to be earned in the
current period reflected in determining the rate the lessor charges the
lessee.
B = the amount of total variable lease payments expected to be earned
during the lease term reflected in determining the rate the lessor
charges the lessee.
C = the amount of the initial measurement of the residual asset relating to
variable lease payments (ie the present value of variable lease payments
expected to be earned during the lease term, discounted using the rate
the lessor charges the lessee).
D = the carrying amount of the underlying asset immediately before the
commencement date.
E = the fair value of the underlying asset at the commencement date.
B21 Changesin estimatesrelating to variable lease paymentsdo not affect the
amounts to be derecognised by the lessor in each period.A lessor shall recognise
any difference between expected and actual variable lease payments in profit or
loss in the reporting period.
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Appendix C
Effective date and transition
This appendix is an integral part of the [draft] Standard and has the same authority as the other
parts of the [draft] Standard.
Effective date
C1 An entity shall apply this [draft] Standard for annual reporting periods
beginning on or after [date to be inserted after exposure].
Transition
C2 An entity shallapply this [draft]Standard retrospectively,in accordance with
IAS 8 Accounting Policies,Changesin Accounting Estimatesand Errors, exceptas
specified in paragraphs C3–C24.
C3 In the financial statements in which an entity first applies the [draft] Standard,
the entity shallrecognise and measure leases within the scope ofthe [draft]
Standard that exist at the beginning of the earliest comparativeperiod
presented, using the approach described in paragraphs C7–C24.
C4 An entity shall adjust equity at the beginning of the earliest comparative period
presented,and the other comparative amounts disclosed for each prior period
presented,as if the [draft]Standard had always been applied,subject to the
requirements in paragraphs C7–C24.
C5 If a lessee elects not to apply the recognition and measurement requirements in
this [draft] Standard to short-term leases, the lessee need not apply the approach
described in paragraphs C8–C12 to short-term leases.If a lessor elects not to
apply the recognition and measurement requirements in this [draft] Standard to
short-term leases, the lessor shall apply paragraph C14.
C6 Notwithstanding the requirements in paragraph C3, an entity may apply all of
the requirements in this [draft]Standard retrospectively in accordance with
IAS 8, taking into consideration the requirements in paragraph C15.
Specified reliefs
C7 An entity may use one or both of the following specified reliefs when applying
this [draft] Standard to leases that commenced before the effective date:
(a) an entity need not include initial direct costs in the measurement of the
right-of-use asset (if the entity is a lessee)or the lease receivable (if the
entity is a lessor).
(b) an entity may use hindsight, such as in determining whether a contract
contains a lease, in classifying a lease or in determining the lease term if
the contract contains options to extend or terminate the lease.
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Lessees
Leases previously classified as operating leases
C8 Unless the requirements in paragraph C10 apply, at the beginning of the earliest
comparative period presented, a lessee shall recognise all of the following:
(a) a lease liability,measured at the present value of the remaining lease
payments,discounted using the lessee’s incremental borrowing rate at
the effective date (see paragraph C9).
(b) for each Type A lease,a right-of-use asset measured as the applicable
proportion of the lease liability at the commencement date,which can
be imputed from the lease liability determined in accordance with
paragraph C8(a).The applicable proportion is the remaining lease term
at the beginning of the earliest comparative period presented relative to
the total lease term.A lessee shall adjust the right-of-use asset recognised
by the amount ofany previously recognised prepaid or accrued lease
payments.
(c) for each Type B lease,a right-of-use asset measured at an amount that
equals the lease liability. A lessee shalladjust the right-of-use asset
recognised by the amountof any previously recognised prepaid or
accrued lease payments.
C9 A lessee can apply a single discount rate to a portfolio of leases with reasonably
similar characteristics (for example, a similar remaining lease term for a similar
class of underlying asset in a similar economic environment).The lessee shall
consider its total financial liabilities when calculating the discount rate for each
portfolio of leases.
Leases previously classified as finance leases
C10 For leases that were classified as finance leases in accordance with IAS 17Leases,
the carrying amountof the right-of-use assetand the lease liability at the
beginning ofthe earliest comparative period presented shallbe the carrying
amount ofthe lease asset and lease liability immediately before that date in
accordance with that Standard.
C11 For those leases, a lessee shall do all of the following:
(a) subsequently measure the right-of-use assetand the lease liability in
accordance with paragraphs 41, 42(a), 42(c), 47–49 and 51–53;
(b) not apply the reassessment requirements in paragraphs 43–46; and
(c) classify the assets and liabilities held under finance leases as right-of-use
assets and lease liabilities arising from Type A leases for the purposes of
presentation and disclosure.
C12 If a modification to the contractual terms and conditions of any of those leases
results in a substantive change to the lease as described in paragraph 36, a lessee
shall account for the lease as a new lease in accordance with the requirements of
this [draft] Standard.
LEASES
姝 IFRS Foundation45

Lessors
Leases previously classified as operating leases
C13 Unless the requirements in paragraph C16 apply, at the beginning of the earliest
comparative period presented for each Type A lease, a lessor shall do all of the
following:
(a) derecognise the underlying asset.A lessor shall adjust the carrying
amount of the underlying assetderecognised by the amountof any
previously recognised prepaid or accrued lease payments;
(b) recognisea lease receivablemeasured at the present value of the
remaining lease payments, discounted using the rate the lessor charges
the lesseedetermined at the commencementdate, subject to any
adjustments required to reflect impairment; and
(c) recognise a residual asset according to the initial measurement
requirementsin paragraph 71, using information available at the
beginning of the earliest comparative period presented.
C14 For Type B leases,the carrying amount of the underlying asset and any lease
assets or liabilities at the beginning of the earliest comparative period presented
shall be the same as the amounts recognised by the lessor immediately before
that date in accordance with IAS 17.
C15 If a lessor had previously securitised receivables arising from leases that were
classified as operating leases in accordance with IAS 17, the lessor shall account
for those transactionsas secured borrowingsin accordance with applicable
Standards, regardless of whether the lessor chooses to apply this [draft] Standard
retrospectively.
Leases previously classified as finance leases
C16 For leases that were classified as finance leases in accordance with IAS 17,the
carrying amount of the lease receivableat the beginning of the earliest
comparativeperiod presented shall be the carrying amount of the net
investment in the lease immediately before that date in accordance with that
Standard.
C17 For those leases, a lessor shall do all of the following:
(a) subsequentlymeasure the lease receivable in accordance with
paragraphs 76(a), 77(a), 77(c), 84, and 87;
(b) not apply the requirements in paragraphs 76(b), 77(b), 78–83, and 85–86;
and
(c) classify the net investment arising from finance leases as lease
receivables arising from Type A leases for the purposes of presentation
and disclosure.
C18 If a modification to the contractual terms and conditions of any of those leases
results in a substantive change to the lease as described in paragraph 36, a lessor
shall account for the lease as a new lease in accordance with the requirements of
this [draft] Standard.
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Sale and leaseback transactions before the beginning of
the earliest comparative period presented
C19 If a previous sale and leaseback transaction was accounted for as a sale and a
finance lease in accordance with IAS 17, an entity shall do all of the following:
(a) not reassessthe transaction to determine whetherit is a sale and
leaseback transaction;
(b) not remeasure lease assets and lease liabilities at the beginning of the
earliest comparative period presented; and
(c) continue to amortise any deferred gain or loss in respect of the
transaction.
C20 An entity shall reassess the transaction to determine whether the transferee
obtains control of the underlying asset in accordance with the requirements for
determining when a performance obligation is satisfied in [draft] IFRS XRevenue
from Contracts with Customersif either of the following applies:
(a) a previous sale and leaseback transaction was accounted for as a sale and
an operating lease in accordance with IAS 17; or
(b) a previous transaction was assessed to determine whether it was a sale
and leaseback transaction in accordance with IAS 17,but it did not
qualify for sale and leaseback accounting.
C21 If a transferee obtains control of the underlying asset in accordance with the
requirements for determining when a performance obligation is satisfied in
[draft] IFRS X Revenuefrom Contractswith Customers, a lessee shall use the
requirements in paragraphs C8–C9 to measure lease assets and lease liabilities
and shall derecognise any deferred gain or loss at the beginning of the earliest
comparative period presented.
Amounts previously recognised in respect of business
combinations
C22 If a lessee has previously recognised an asset or a liability in accordance with
IFRS 3 Business Combinationsrelating to favourable or unfavourable terms of an
operating lease acquired as partof a business combination,the lessee shall
derecognise thatassetor liability and adjust the carrying amount of the
right-of-use asset by a corresponding amount.
Disclosure
C23 An entity shall provide the transition disclosures required by IAS 8,except for
the requirements in paragraphs 28(f)(i) and 28(f)(ii) of IAS 8.
C24 If an entity uses one or both of the specified reliefs in paragraph C7,it shall
disclose that fact.
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Withdrawal of other Standards
C25 This [draft] Standard supersedes the following Standards and Interpretations:
(a) IAS 17;
(b) IFRIC 4Determining whether an Arrangement contains a Lease;
(c) SIC-15Operating Leases—Incentives; and
(d) SIC-27Evaluating the Substance ofTransactions Involving the LegalForm ofa
Lease.
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Appendix D
[Draft] Amendments to other IFRSs
This appendix sets out the [draft]amendments to other IFRSs that are a consequence of the IASB
issuing this [draft] Standard.An entity shall apply the amendments for annual periods beginning
on or after [date to be inserted].Amended paragraphs are shown with new text underlined and
deleted text struck through.
The table below shows how the following references have been amended in other
Standards.
Existing reference
to
contained in in is amended to
reference to
IAS 17 Leases
[or IAS 17]
IFRS 1 Paragraph C4(f) [draft] IFRS X
Leases [or [draft]
IFRS X]
IFRS 4 Paragraph 4(c) and
Implementation
Guidance,
Example 1
IFRIC 12 References and
paragraph AG8
SIC-29 References and
paragraph 5
SIC-32 References
Finance lease
[or finance leases]
IFRS 1 Paragraph C4(f) Lease [or leases]
IFRS 4 Paragraph 4(c) and
Implementation
Guidance,
Example 1
IAS 7 Paragraph 44(a)
Contingent lease
payments [or
contingent rentals or
contingent
payments]
IFRS 4 Paragraph 4(c) Variable lease
payments
IFRS 9 Paragraph
B4.3.8(f)(ii)–B4.3.8
(f)(iii)
IAS 34 Paragraph B7 and
its related heading
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IFRS 1 First-time Adoption of International Financial Reporting
Standards
Paragraph 30 is amended.
Use of fair value as deemed cost
30 If an entity uses fair value in its opening IFRS statement of financial position as
deemed costfor an item of property,plant and equipment,an investment
property,or an intangible asset or a right-of-use asset (see paragraphs D5 and
D7), the entity’s first IFRS financial statements shall disclose, for each line item
in the opening IFRS statement of financial position:
(a) ...
In Appendix D, paragraphs D1, D7, D8B and D9 are amended, paragraph D7A is added
and paragraph D9A is deleted.
D1 An entity may elect to use one or more of the following exemptions:
(a) …
(d) leases (paragraphs D9 and D9A);
(e) …
Deemed cost
…
D7 The elections in paragraphs D5 and D6 are also available for:
(a) investment property,if an entity elects to use the cost model in IAS 40
Investment Property; and
(aa) right-of-use assets ([draft] IFRS XLeases); and
(b) …
D7A A lessee that elects to measure a right-of-use asset arising from a Type B lease at
fair value as its deemed cost shall include the difference between the fair value
of the right-of-use asset and the carrying amount of the lease liability at the date
of transition as part of the remaining cost of the lease.
…
D8B Some entities hold items of property, plant and equipment, right-of-use assets or
intangible assets that are used, or were previously used, in operations subject to
rate regulation.The carrying amount of such items might include amounts that
were determined under previous GAAP but do not qualify for capitalisation in
accordance with IFRSs.If this is the case,a first-time adopter may elect to use
the previous GAAP carrying amount of such an item at the date of transition to
IFRSs as deemed cost.If an entity applies this exemption to an item, it need not
apply it to all items.At the date of transition to IFRSs,an entity shall test for
impairment in accordance with IAS 36 each item for which this exemption is
used. For the purposesof this paragraph,operationsare subject to rate
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regulation if they provide goods or services to customers atprices (ie rates)
established by an authorised body empowered to establish rates that bind the
customers and that are designed to recover the specific costs the entity incurs in
providing the regulated goods or services and to earn a specified return.The
specified return could be a minimum or range and need notbe a fixed or
guaranteed return.
Leases
D9 A first-time adopter may apply the transitional provisions in IFRIC 4Determining
whether an Arrangementcontains a Leaseparagraphs C3–C9,C13 and C23–C24 of
[draft]IFRS X. However,a first-time adopter is notpermitted to apply the
transitionalprovisions in paragraphs C10–C12 and C14–C22 of [draft]IFRS X.
When applying the transitional provisions in [draft]IFRS X, a first-time adopter
shall regard the effective date to be the date of transition to IFRSs in accordance
with this Standard.Therefore,a first-time adopter may determine whether an
arrangement existing at the date of transition to IFRSs contains a lease on the
basis of facts and circumstances existing at that date.
D9A [Deleted]If a first-time adopter made the same determination ofwhether an
arrangementcontained a lease in accordance with previousGAAP as that
required by IFRIC 4 butat a date other than thatrequired by IFRIC 4,the
first-time adopter need not reassess that determination when it adopts IFRSs.
For an entity to have made the same determination of whether the arrangement
contained a lease in accordance with previous GAAP, that determination would
have to have given the same outcome as that resulting from applying IAS 17
Leasesand IFRIC 4.
In the Implementation Guidance, paragraph IG4 and Examples 7 and 11 are amended
and paragraphs IG14–IG16, IG204–IG206 and their related headings and Example 202
are deleted.
IAS 10 Events after the Reporting Period
…
IG4 Paragraphs 14–17 of the IFRS do not override requirements in other IFRSs that
base classifications or measurements on circumstances existing at a particular
date. Examples include:
(a) the distinction between finance Type A leases and operating Type B
leases (see IAS 17 Leases [draft]IFRS X Leases). A first-time adopter shall
classify thosecontractson the basis of the contractualterms and
conditions at the commencement date of the lease.If the contractual
terms and conditions of a lease are modified, resulting in a substantive
change to the original lease,a first-time adopter shall classify any new
lease on the basis of the contractual terms and conditions at the
commencement date of the new lease;
(b) ...
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IAS 17 Leases
IG14 [Deleted]At the date of transition to IFRSs,a lessee or lessor classifies leases as
operating leases or finance leases on the basis of circumstances existing at the
inception of the lease (IAS 17 paragraph 13).In some cases,the lessee and the
lessor may agree to change the provisions of the lease, other than by renewing
the lease,in a manner that would have resulted in a different classification in
accordance with IAS 17 had the changed terms been in effect at the inception of
the lease.If so, the revised agreement is considered as a new agreement over its
term. However, changes in estimates (for example, changes in estimates of the
economic life or of the residualvalue of the leased property)or changes in
circumstances (for example,default by the lessee)do not give rise to a new
classification of a lease.
IG15 [Deleted] When IAS 17 was revised in 1997, the net cash investment method for
recognising finance income of lessors was eliminated.IAS 17 permits finance
lessorsto eliminate this method prospectively. However,the transitional
provisions in IAS 17 do not apply to an entity’s opening IFRS statementof
financial position (paragraph 9 of the IFRS).Therefore, a finance lessor measures
finance lease receivables in its opening IFRS statement of financial position as if
the net cash investment method had never been permitted.
IG16 [Deleted] SIC-15Operating Leases—Incentivesapplies to lease terms beginning on or
after 1 January 1999.However, a first-time adopter applies SIC-15 to all leases,
whether they started before or after that date.
...
IFRS 3 Business Combinations
...
IG22 The following examples illustrate the effect of Appendix C of the IFRS, assuming
that a first-time adopter uses the exemption.
...
IG Example 7 Business combination—finance lease not capitalised in
accordance with previous GAAP
Background
Parent L’s date of transition to IFRSs is 1 January 20X4. Parent L acquired
subsidiary M on 15 January 20X1 and did not capitalise subsidiary M’s
finance leases.If subsidiary M prepared financial statements in accordance
with IFRSs, it would recognise finance lease liabilities obligations of 300 and
right-of-use leased assets of 250 at 1 January 20X4.
continued...
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...continued
IG Example 7 Business combination—finance lease not capitalised in
accordance with previous GAAP
Application of requirements
Parent L has elected not to apply the transitional reliefs in paragraph D9 of
this Standard.In its consolidated opening IFRS statement of financial
position, parent L recognises finance lease liabilities obligations of CU300
and right-of-use leased assets of CU250, and charges CU50 to retained
earnings (paragraph C4(f)).
…
Explanation of transition to IFRSs
IG63 Paragraphs 24(a)and (b),25 and 26 of the IFRS require a first-time adopter to
disclose reconciliations that give sufficient detail to enable users to understand
the materialadjustments to the statement of financialposition,statement of
comprehensive income and,if applicable,statement of cash flows.Paragraph
24(a) and (b) requires specific reconciliations of equity and total comprehensive
income. IG Example 11 shows one way of satisfying these requirements.
IG Example 11 Reconciliation of equity and total comprehensive income
Background
An entity first adopted IFRSs in 20X5, with a date of transition to IFRSs of 1 January
20X4. Its last financial statements in accordance with previous GAAP were for the year
ended 31 December 20X4.
Application of requirements
…
Reconciliation of equity at 1 January 20X4 (date of transition to IFRSs)
Note Previous
GAAP
Effect of
transition
to IFRSs
IFRSs
CU CU CU
1, 1A Property, plant and equipment 8,299 1,100 89,399
2 Goodwill 1,220 150 1,370
2 Intangible assets 208 (150) 58
3 Financial assets 3,471 420 3,891
Total non-current assets 13,198 1,520 134,718
Trade and other receivables 3,710 0 3,710
4 Inventories 2,962 400 3,362
5 Other receivables 333 431 764
Cash and cash equivalents 748 0 748
continued...
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...continued
IG Example 11 Reconciliation of equity and total comprehensive income
Total current assets 7,753 831 8,584
Total assets 20,951 12,351 223,302
Interest-bearing loans 9,396 0 9,396
Trade and other payables 4,124 0 4,124
1A Lease liabilities 0 1,000 1,000
6 Employee benefits 0 66 66
7 Restructuring provision 250 (250) 0
Current tax liability 42 0 42
8 Deferred tax liability 579 460 1,039
Total liabilities 14,391 1,276 1415,667
Total assets less total liabilities 6,560 1,075 7,635
Issued capital 1,500 0 1,500
5 Hedging reserve 0 302 302
9 Retained earnings 5,060 773 5,833
Total equity 6,560 1,075 6,635
Notes to the reconciliation of equity at 1 January 20X4:
1 Depreciation was influenced by tax requirements in accordance with previous
GAAP, but in accordance with IFRSs reflects the useful life of the assets.The
cumulative adjustment increased the carrying amount of property, plant and
equipment by 100.
1A Right-of-use assets arising from Type B leases of property and related lease
liabilities of CU1,000 are recognised in accordance with IFRS, but were not
recognised in accordance with previous GAAP.For the purposes of this
example, it is assumed that the right-of-use asset equals the liability at the date
of transition.The entity presents right-of-use assets within property, plant and
equipment.
2 ...
...
IFRIC 4 Determining whether an Arrangement contains a
Lease
IG204 [Deleted]IFRIC 4 specifiescriteria for determining,at the inception of an
arrangement, whether the arrangement contains a lease.It also specifies when
an arrangement should be reassessed subsequently.
IG205 [Deleted] Paragraph D9 of the IFRS provides a transitional exemption.Instead of
determining retrospectively whether an arrangement contains a lease at the
inception of the arrangement and subsequently reassessing that arrangement as
required in the periods before transition to IFRSs,entities may determine
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whether arrangements in existence on the date of transition to IFRSs contain
leases by applying paragraphs 6–9 of IFRIC 4 to those arrangements on the basis
of facts and circumstances existing on that date.
IG Example 202 Determining whether an arrangement contains a lease
Background
An entity’s first IFRS financial statements are for a period that ends on 31
December 20Y7 and include comparative information for 20Y6 only.Its date
of transition to IFRSs is therefore 1 January 20Y6.
On 1 January 20X5 the entity entered into a take-or-pay arrangement to
supply gas.On 1 January 20Y0, there was a change in the contractual terms
of the arrangement.
Application of requirements
On 1 January 20Y6 the entity may determine whether the arrangement
contains a lease by applying the criteria in paragraphs 6–9 of IFRIC 4 on the
basis of facts and circumstances existing on that date.Alternatively, the
entity applies those criteria on the basis of facts and circumstances existing
on 1 January 20X5 and reassesses the arrangement on 1 January 20Y0.If the
arrangement is determined to contain a lease, the entity follows the
guidance in paragraphs IG14–IG16.
IG206 [Deleted] Paragraph D9A of IFRS 1 provides a transitional exemption in addition
to that discussed in paragraph IG205.The exemption in paragraph D9A applies
only to arrangements that were assessed in the same manner as required by
IFRIC 4.If arrangements exist at the date of transition to IFRSs that an entity did
not assess under previous GAAP in the same manner as required by IFRIC 4 to
determine whether they contain a lease,the entity may apply the transition
exemption discussed in paragraph IG205.
IFRS 3 Business Combinations
Paragraphs 14 and 17 are amended and paragraph 28A and its related heading are
added.
Recognition conditions
…
14 Paragraphs B28–B40 B31–B40 provide guidance on recognising operating leases
and intangible assets.Paragraphs 22–28A specify the types of identifiable assets
and liabilities that include items for which this IFRS provides limited exceptions
to the recognition principle and conditions.
...
Classifying or designating identifiable assets acquired and liabilities
assumed in a business combination
...
LEASES
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17 This IFRS provides two exceptions to the principle in paragraph 15:
(a) classification of a lease contract as either an operating lease a Type A
lease or a finance Type B lease in accordance with IAS 17 [draft]IFRS X
Leases; and. The acquirer shall classify those contracts on the basis of the
contractualterms and conditions atthe commencementdate of the
lease. If the contractual terms and conditions of a lease are modified,
resulting in a substantive change to the original lease, the acquirer shall
classify any new lease on the basis of the contractualterms and
conditions at the commencement date of the new lease, which might be
the acquisition date.
(b) …
Leases
28A Paragraphs B45A–B45E provide guidance on recognising and measuring assets
and liabilities that arise from leases at the acquisition date.
In Appendix B, paragraphs B28–B30 are deleted.
Operating leases
B28 [Deleted]The acquirer shall recognise no assetsor liabilities related to an
operating lease in which the acquiree isthe lessee exceptas required by
paragraphs B29 and B30.
B29 [Deleted] The acquirer shall determine whether the terms of each operating lease
in which the acquiree is the lessee are favourable or unfavourable.The acquirer
shall recognise an intangible assetif the terms of an operating lease are
favourable relative to market terms and a liability if the terms are unfavourable
relative to market terms.Paragraph B42 provides guidance on measuring the
acquisition-date fair value ofassets subjectto operating leases in which the
acquiree is the lessor.
B30 [Deleted]An identifiable intangible asset may be associated with an operating
lease, which may be evidenced by market participants’ willingness to pay a price
for the lease even if it is at market terms.For example,a lease of gates at an
airport or of retail space in a prime shopping area might provide entry into a
market or other future economic benefits that qualify as identifiable intangible
assets,for example,as a customer relationship.In that situation,the acquirer
shall recognise the associated identifiable intangible asset(s) in accordance with
paragraph B31.
In Appendix B, paragraph B32 is amended and paragraph B42 and its related heading
are deleted.
Intangible assets
…
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B32 An intangible asset that meets the contractual-legal criterion is identifiable even
if the asset is not transferable or separable from the acquiree or from other
rights and obligations.For example:
(a) [deleted] an acquiree leases a manufacturing facility under an operating
lease that has terms that are favourable relative to market terms.The
lease terms explicitly prohibit transfer of the lease (through either sale or
sublease). The amount by which the lease terms are favourable
compared with the terms of current market transactions for the same or
similar items is an intangible assetthat meetsthe contractual-legal
criterion for recognition separately from goodwill,even though the
acquirer cannot sell or otherwise transfer the lease contract.
(b) ...
Assets subject to operating leases in which the acquiree
is the lessor
B42 [Deleted]In measuring the acquisition-date fair value ofan assetsuch as a
building or a patent that is subject to an operating lease in which the acquiree is
the lessor, the acquirer shall take into account the terms of the lease.In other
words, the acquirer does not recognise a separate asset or liability if the terms of
an operating lease are either favourable or unfavourable when compared with
market terms as paragraph B29 requires for leases in which the acquiree is the
lessee.
In Appendix B, paragraphs B45A–B45E and their related headings are added and
paragraph B64 is amended.
Recognition and measurement of leases acquired in a business
combination
B45A The acquirer shall recogniseassetsand liabilities arising from leases in
accordancewith [draft] IFRS X (taking into account the requirementsin
paragraph B45B),and shallmeasure those assets and liabilities in accordance
with paragraphs B45C–B45E.
B45B The acquirer shall not recognise assets or liabilities at the acquisition date for
leases that,at that date,have a remaining maximum possible term under the
contract of 12 months or less.
Assets and liabilities recognised when the acquiree is a
lessor
B45C When the acquiree is a lessor of a Type A lease,the acquirer shall recognise a
lease receivable and a residual asset for each Type A lease at the acquisition date.
The acquirer shallmeasure the lease receivable atthe presentvalue of the
remaining lease payments,as if the acquired lease were a new lease atthe
acquisition date.The acquirer shall measure the residual asset as the difference
between the fair value of the underlying asset at the acquisition date and the
carrying amount of the lease receivable at that date.The acquirer shall take into
LEASES
姝 IFRS Foundation57

account the terms and conditions of the lease in calculating the acquisition-date
fair value of an asset that is subject to a Type A lease (ie the acquirer does not
recognise a separate assetor liability if the terms of the lease are either
favourable or unfavourable when compared with market terms).
B45D When the acquiree is a lessor ofa Type B lease,the acquirer shalltake into
account the terms and conditions of the lease in measuring the acquisition-date
fair value of the underlying asset, such as a building, that is subject to the lease
(ie the acquirer does not recognise a separate asset or liability if the terms of the
lease are either favourable or unfavourable when compared with market terms).
Assets and liabilities recognised when the acquiree is a
lessee
B45E When the acquiree is a lessee,the acquirer shall recognise a right-of-use asset
and a lease liability for each lease at the acquisition date.The acquirer shall
measure the lease liability at the present value of the remaining lease payments,
as if the acquired lease were a new lease at the acquisition date.The acquirer
shall measure the right-of-use asset at the same amount as the lease liability,
adjusted to reflect:
(a) favourable or unfavourable termsof the lease when compared with
market terms; and
(b) any other intangible assetassociated with the lease,which may be
evidenced by market participants’ willingness to pay a price for the lease
even if it is at market terms (for example, a lease of gates at an airport or
of retail space in a prime shopping area that might provide entry into a
market or other future economic benefitsthat qualify as intangible
assets).
...
Disclosures (application of paragraphs 59 and 61)
B64 To meet the objective in paragraph 59, the acquirer shall disclose the following
information for each business combination that occurs during the reporting
period:
(a) …
(h) for acquired receivables:
(i) the fair value ofthe receivables (unless those receivables arise
from Type A leasesfor which the acquirer shall disclose the
amounts recognised as of the acquisition date);
(ii) the gross contractual amounts receivable; and
(iii) the best estimate at the acquisition date of the contractual cash
flows not expected to be collected.
The disclosures shall be provided by major class of receivable,such as
loans,direct finance leases lease receivables arising from Type A leases
and any other class of receivables.
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In the Illustrative Examples, paragraphs IE34 and IE72 are amended.
Contract-based intangible assets
IE34 Contract-based intangible assets represent the value ofrights that arise from
contractual arrangements.Customer contracts are one type of contract-based
intangible asset.If the terms of a contract give rise to a liability (for example, if
the terms of an operating lease or a customer contract are unfavourable relative
to market terms), the acquirer recognises it as a liability assumed in the business
combination.Examples of contract-based intangible assets are:
Class Basis
… …
Lease agreements (whether the acquiree is the lessee
or the lessor) Contractual
… …
...
Disclosure requirements
…
IE72 The following example illustrates some of the disclosure requirements of IFRS 3;
it is not based on an actual transaction.The example assumes that AC is a listed
entity and that TC is an unlisted entity.The illustration presents the disclosures
in a tabular format that refers to the specific disclosure requirements illustrated.
An actual footnote might present many of the disclosures illustrated in a simple
narrative format.
...
B64(h) The fair value of the financial assets acquired includes lease
receivables arising from under finance Type A leases of data
networking equipment with a fair value of CU2,375.The gross
amount due under the contracts is CU3,100, of which CU450 is
expected to be uncollectible.
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IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations
In the Implementation Guidance, Example 4 is amended.
Completion of sale expected within one year (paragraph 8)
Example 4
To qualify for classification as held for sale,the sale ofa non-current asset (or disposal
group) must be highly probable (paragraph 7), and transfer of the asset (or disposal group)
must be expected to qualify for recognition as a completed salewithin one year
(paragraph 8).That criterion would not be met if, for example:
(a) …
(b) an entity is committed to a plan to ‘sell’ a property that is in use, and the transfer of
the property will be accounted for as a sale and finance leaseback as part of a sale
and leaseback transaction,and the transaction doesnot qualify for sale and
leaseback accounting in accordance with paragraph 115 of [draft] IFRS XLeases.
IFRS 7 Financial Instruments: Disclosures
In Appendix B, paragraph B11D is amended.
Quantitative liquidity risk disclosures (paragraphs 34(a)
and 39(a) and (b))
...
B11D The contractualamountsdisclosed in the maturity analysesas required by
paragraph 39(a)and (b) are the contractualundiscounted cash flows,for
example:
(a) [deleted]gross finance lease obligations (before deducting finance
charges);
(b) ...
IFRS 13 Fair Value Measurement
Paragraph 6 is amended.
Scope
…
6 The measurement and disclosure requirements of this IFRS do not apply to the
following:
(a) share-based payment transactions within the scope of IFRS 2Share-based
Payment; and
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(b) [deleted] leasing transactions within the scope of IAS 17 Leases; and
(c) …
IAS 1 Presentation of Financial Statements
Paragraphs 54 and 123 are amended.
Information to be presented in the statement of financial position
54 As a minimum,the statement offinancialposition shallinclude line
items that present the following amounts:
(a) …
(b) investment property;
(ba) lease assets (ie the sum of the carrying amounts of lease receivables
and residual assets arising from Type A leases);
(c) …
Disclosure of accounting policies
…
123 In the process of applying the entity’s accounting policies, management makes
various judgements, apart from those involving estimations, that can
significantly affect the amounts it recognises in the financial statements.For
example, management makes judgements in determining:
(a) …
(b) when substantially all the significant risks and rewards of ownership of
financial assets and lease assets are transferred to other entities; and
(c) ...
IAS 2 Inventories
Paragraph 12A is added.
Costs of conversion
...
12A The costs of conversion include costs incurred relating to leases of assets that are
used to convert materials into finished goods.For Type A leases,the costs of
conversion include the amortisation ofthe right-of-use assetdetermined in
accordance with [draft]IFRS X Leases.For Type B leases, the costs of conversion
include the lease cost determined in accordance with [draft] IFRS X.
IAS 7 Statement of Cash Flows
Paragraphs 14, 17 and 33 are amended.
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Operating activities
…
14 Cash flows from operating activities are primarily derived from the principal
revenue-producing activities of the entity.Therefore, they generally result from
the transactions and other events that enter into the determination of profit or
loss. Examples of cash flows from operating activities are:
(a) ...
(aa) cash receipts arising from leases;
(b) …
(c) cash payments to suppliers for goods and services;
(ca) cash payments arising from Type B leases;
(d) ...
Financing activities
17 The separatedisclosureof cash flows arising from financing activities is
important because itis useful in predicting claims on future cash flows by
providers of capital to the entity.Examples of cash flows arising from financing
activities are:
(a) …
(e) cash payments by a lessee for the reduction of the outstanding liability
relating to a finance Type A lease.
…
Interest and dividends
…
33 The unwinding of the discount on the lease receivable arising from Type A leases
is classified as cash flows from operating activities for a lessor.Interest paid and
interest and dividends received are usually classified as operating cash flows for
a financial institution.However,there is no consensus on the classification of
these cash flows for other entities.Interest paid and interest and dividends
received may be classified as operating cash flows because they enter into the
determination ofprofit or loss. Alternatively,interest paid and interest and
dividends received may be classified as financing cash flows and investing cash
flows respectively,because they are costs ofobtaining financialresources or
returns on investments.
In the Illustrative Examples, Example A is amended.
A Statement of cash flows for an entity other than a
financial institution
...
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3 The following additional information is also relevant for the preparation of the
statements of cash flows:
● ...
● during the period,the group acquired property,plant and equipment
with an aggregate cost of 1,250 of which 900 was acquired by means of
finance leases.C made cash payments of 350 were made to purchase
property,plant and equipment. The group also entered into Type A
leases giving rise to right-of-use assets with a cost of 900.
● ...
Consolidated statement of financial position as at end of 20X2
20X2 20X1
Assets
…
Property, plant and equipment at
cost(a) 3,730 1,910
Accumulated depreciation (1,450) (1,060)
Property, plant and equipment
net 2,280 850
…
Liabilities
...
Long-term debt (b) 2,300 1,040
...
(a) The Group presents right-of-use assets within property, plant and equipment.
(b) The Group presents lease liabilities within long-term debt.
Direct method statement of cash flows (paragraph 18(a))
... 20X2
Cash flows from financing activities
...
Payment of finance Type A lease liabilities (90)
...
Indirect method statement of cash flows (paragraph 18(b))
... 20X2
Cash flows from financing activities
...
Payment of finance Type A lease liabilities (90)
...
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Notes to the statement of cash flows (direct method and indirect method)
...
B. Property, plant and equipment
During the period,the Group acquired property,plant and equipment with an aggregate
cost of 1,250 of which 900 was acquired by means of finance related to right-of-use assets
arising from Type A leases.Cash payments of 350 were made to purchase property, plant
and equipment.
...
IAS 16 Property, Plant and Equipment
Paragraph 3A is added and paragraphs 4 and 27 are deleted.
Scope
…
3A This Standard applies to property, plant and equipment provided by a lessor to a
lessee under one or more Type B or short-term leases.
4 [Deleted] Other Standards may require recognition of an item of property, plant
and equipment based on an approach different from that in this Standard.For
example, IAS 17Leasesrequires an entity to evaluate its recognition of an item of
leased property,plant and equipment on the basis of the transfer of risks and
rewards.However, in such cases other aspects of the accounting treatment for
these assets, including depreciation, are prescribed by this Standard.
...
Measurement of cost
…
27 [Deleted]The cost of an item of property, plant and equipment held by a lessee
under a finance lease is determined in accordance with IAS 17.
Paragraphs 44 and 68–69 are amended.
Depreciation
...
44 An entity allocates the amountinitially recognised in respectof an item of
property, plant and equipment to its significant parts and depreciates separately
each such part.For example, it may be appropriate to depreciate separately the
airframe and engines of an aircraft, whether owned or subject to a finance lease.
Similarly, if an entity acquires property,plant and equipment subject to an
operating a Type B lease in which it is the lessor,it may be appropriate to
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depreciate separately amountsreflected in the cost of that item that are
attributable to favourable or unfavourable lease terms relative to market terms.
...
Derecognition
…
68 The gain or loss arising from the derecognition of an item of property,
plant and equipment shall be included in profit or loss when the item is
derecognised (unless IAS 17 IFRS XLeasesrequires otherwise on a sale and
leaseback).Gains shall not be classified as revenue.
…
69 The disposal of an item of property, plant and equipment may occur in a variety
of ways (eg by sale, by entering into a finance Type A lease or by donation).In
determining the date of disposal of an item that is sold,an entity applies the
criteria in IAS 18 for recognising revenue from the sale of goods.IAS 17 [Draft]
IFRS X applies to a disposal effected by entering into a Type A lease and to by a
sale and leaseback transaction.
IAS 23 Borrowing Costs
Paragraph 6 is amended.
Definitions
…
6 Borrowing costs may include:
(a) …
(d) finance charges in respect of finance the unwinding of the discount on
lease liabilities arising from Type A leases recognised in accordance with
IAS 17 [draft] IFRS XLeases; and
(e) ...
IAS 32 Financial Instruments: Presentation
In the Application Guidance, paragraphs AG9 and AG10 are amended. As part of the
amendment to paragraph AG9, a new paragraph, AG9A, has been added.
Financial assets and financial liabilities
...
AG9 Under IAS 17 [draft]IFRS X Leasesa finance lease gives rise to is regarded as
primarily an entitlement of the lessor to receive, and an obligation of the lessee
to pay, a stream of paymentsthat are substantially the same asblended
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payments ofprincipal and interest under a loan agreement.Accordingly,a
lessee’s lease liability is regarded as a financial instrument.
AG9A Under [draft] IFRS X, Tthe lessor of a Type A lease accounts for its investment in
the amountreceivable under the lease and its interestin the residual asset
contract rather than the leased underlying asset itself.An operating lease,on
the other hand,is regarded as primarily an uncompleted contract committing
the lessor to provide the use ofan assetin future periods in exchange for
consideration similarto a fee for a service. Accordingly,a lessor’s lease
receivable arising from a Type A lease is regarded as a financial instrument.The
lessor of a Type B or a short-term lease (for which the lessor has chosen to elect
the recognition exemption),however,continues to account for the leased
underlying asset itself rather than any amount receivable in the future under
the contract lease. Accordingly,a finance lease is regarded asa financial
instrument and an operating lease is a Type B lease and a short-term lease,for
which the lessor has elected the recognition exemption in [draft] IFRS X, are not
regarded as a financial instruments for the lessor (except as regards individual
payments currently due and payable).
AG10 Physicalassets (such as inventories,property,plant and equipment),leased a
lessee’s right-of-use assets, a lessor’s residual assets and intangible assets (such as
patents and trademarks)are not financial assets.Control of such physical and
intangible assets creates an opportunity to generate an inflow of cash or another
financial asset,but it does not give rise to a present right to receive cash or
another financial asset.
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
Paragraph 5 is amended.
Scope
…
5 When another Standard dealswith a specific type of provision,contingent
liability or contingentasset,an entity applies thatStandard instead ofthis
Standard.For example, some types of provisions are addressed in Standards on:
(a) ...
(c) leases (see IAS 17 [draft]IFRS X Leases). However,as IAS 17 contains no
specific requirements to dealwith operating leases that have become
onerous,this Standard appliesto such cases[draft]IFRS X does not
require the recognition and measurement of assets and liabilities arising
from a lease before the commencement date of a lease,this Standard
applies to any lease that becomesonerous before that date. This
Standard also appliesto short-term leasesfor which the entity has
elected the recognition exemption in [draft] IFRS X;
(d) ...
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In the Illustrative Examples, Example 8 is deleted.
Example 8 An onerous contract
An entity operates profitably from a factory that it has leased under an operating lease.
During December 20X0 the entity relocates its operations to a new factory.The lease on the
old factory continues for the next four years, it cannot be cancelled and the factory cannot
be re-let to another user.
Present obligation as a result of a past obligating event – The obligating event is the
signing of the lease contract, which gives rise to a legal obligation.
An outflow of resources embodying economic benefits in settlement – When the lease
becomes onerous, an outflow of resources embodying economic benefits is probable.(Until
the lease becomes onerous, the entity accounts for the lease under IAS 17 Leases.)
Conclusion – A provision is recognised for the bestestimate ofthe unavoidable lease
payments (see paragraphs 5(c), 14 and 66).
IAS 38 Intangible Assets
Paragraphs 3, 6 and 113–114 are amended.
Scope
…
3 If another Standard prescribes the accounting for a specific type of intangible
asset, an entity applies that Standard instead of this Standard.For example, this
Standard does not apply to:
(a) …
(c) assets arising from leases that are within the scope of IAS 17 Leases to
which [draft] IFRS XLeasesis applied.
(d) ...
6 In the case of a finance lease,the underlying asset may be either tangible or
intangible. After initial recognition,a lessee accounts for an intangible asset
held under a finance lease in accordance with this Standard.Rights held by an
entity under licensing agreements for items such as motion picture films, video
recordings,plays,manuscripts,patents and copyrights are excluded from the
scope of IAS 17 and are within the scope of this Standard.
...
Retirements and disposals
…
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113 The gain or loss arising from the derecognition of an intangible asset
shall be determined as the difference between the net disposal proceeds,
if any,and the carrying amount of the asset.It shall be recognised in
profit or loss when the asset is derecognised (unless IAS 17 IFRS X requires
otherwise on a sale and leaseback).Gains shallnot be classified as
revenue.
114 The disposal of an intangible asset may occur in a variety of ways (eg by sale, by
entering into a finance lease,or by donation). In determining the date of
disposalof such an asset,an entity applies the criteria in IAS 18Revenuefor
recognising revenue from the sale of goods.IAS 17 applies to disposal by a sale
and leaseback.
IAS 39 Financial Instruments: Recognition and Measurement
Paragraph 2 is amended.
Scope
This Standard shallbe applied by allentities to alltypes of financial
instruments except:
(a) ...
(b) rights and obligations under leases to which IAS 17 [draft] IFRS X
Leasesapplies.However:
(i) lease receivables recognised by a lessor are subject to the
derecognition and impairment provisions of this Standard;
(ii) finance lease payables lease liabilities recognised by a lessee
are subject to the derecognitionprovisions of this
Standard; and
(iii) ...
IAS 40 Investment Property
Given the extensive changes to IAS 40 Investment Property, the full text of this
Standard with the proposed changes to it has been reproduced at the end of
Appendix D.
IAS 41 Agriculture
Paragraph 2 is amended.
Scope
...
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2 This Standard does not apply to:
(a) land related to agricultural activity (see IAS 16 Property,Plant and
Equipmentand IAS 40Investment Property); and
(b) intangible assets related to agriculturalactivity (see IAS 38Intangible
Assets).; and
(c) leases of land related to agricultural activity (see [draft] IFRS XLeases).
IFRIC 1 Changes in Existing Decommissioning, Restoration and
Similar Liabilities
Paragraph 2A is added.
Scope
…
2A This Interpretation also applies to changes in the measurement ofa liability
related to returning an asset in a specified condition at the end of a lease.
IFRIC 12 Service Concession Arrangements
The reference to IFRIC 4 in the References paragraph is deleted.
References
● ...
● IFRIC 4Determining whether an Arrangement contains a Lease
● …
In the Implementation Guidance, Information note 1 is amended.
Information note 1
Accounting framework for public-to-private service arrangements
The diagram below summarises the accounting for service arrangements established by
IFRIC 12.
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Does the grantor control or regulate what services
the operator must provide with the infrastructure,
to whom it must provide them, and at what price?
Does the grantor control, through ownership,
beneficial entitlement or otherwise, any significant
residual interest in the infrastructure at the end of
the service arrangement?
Is the infrastructure constructed or
acquired by the operator from a
third party for the purpose of
Is the infrastructure existing
infrastructure of the grantor to
which the operator is given access
for the purpose of
the service arrangement?
WITHIN THE SCOPE OF THE INTERPRETATION
Operator does not recognise infrastructure as property, plant and equipment or as a leased right-of-use asset.
Does the operator have a
contractual right to receive cash
or other financial asset from
or at the direction of the grantor
as described in paragraph 16?
Operator recognises a financial
asset to the extent that it has a
contractual right to receive
cash or another financial asset
as described in paragraph 16
Operator recognises an intangible
asset to the extent that it has a
contractual right to receive
an intangible asset
as described in paragraph 17
OUTSIDE
THE INTERPRETATION
SEE INFORMATION NOTE 2
Yes
Yes
Yes Yes
Yes
No
No
No
No
Does the operator have a
contractual right to charge
users of the public services
as described in paragraph 17?
OUTSIDE
THE SCOPE OF
THE INTERPRETATION
SEE PARAGRAPH 27
NoNo
the service arrangement?
THE SCOPE OF
Or is the infrastructure used in the arrangement
for its entire useful life?
Yes
SIC-32 Intangible Assets—Web Site Costs
Paragraph 6 is amended.
Issue
…
6 IAS 38 does notapply to intangible assets held by an entity for sale in the
ordinary course of business (see IAS 2 and IAS 11) or leases that fall within the
scope of IAS 17 [draft] IFRS X.Accordingly, this Interpretation does not apply to
expenditure on the development or operation of a web site (or web site software)
for sale to another entity.When a web site is leased under an operating a Type B
lease,the lessor applies this Interpretation.When a web site is leased under a
finance lease,the lessee applies this Interpretation after initial recognition of
the leased right-of-use asset.
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Given the extensive changes to IAS 40 Investment Property, the full text of this
Standard with the proposed changes to it has been reproduced. New text is underlined
and deleted text is struck through.
International Accounting Standard 40
Investment Property
Objective
1 The objective ofthis Standard is to prescribe the accounting treatmentfor
investment property and related disclosure requirements.
Scope
2 This Standard shallbe applied in the recognition,measurementand
disclosure of investment property.
3 Among other things, this Standard applies to:
(a) the measurement in a lessee’s financial statements of a right-of-use asset
that arises from a lease of property if the property would otherwise meet
the definition of investmentproperty interestsheld under a lease
accounted for as a finance lease; and to
(b) the measurementin a lessor’sfinancial statementsof investment
property provided to a lessee under an operating one or more Type B or
short-term leases.
This Standard does not deal with matters covered in IAS 17 Leases, including:
(a) classification of leases as finance leases or operating leases;
(b) recognition of lease income from investment property (see also IAS 18
Revenue);
(c) measurement in a lessee’s financial statements of property interests held
under a lease accounted for as an operating lease;
(d) measurement in a lessor’s financial statements of its net investment in a
finance lease;
(e) accounting for sale and leaseback transactions; and
(f) disclosure about finance leases and operating leases.
4 This Standard does not apply to:
(a) biologicalassets related to agriculturalactivity (see IAS 41Agriculture);
and
(b) mineral rights and mineral reserves such as oil, natural gas and similar
non-regenerative resources.
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Definitions
5 The following termsare used in this Standard with the meanings
specified:
Carrying amountis the amount at which an asset is recognised in the
statement of financial position.
Costis the amount of cash or cash equivalents paid or the fair value of
other consideration given to acquire an asset at the time of its acquisition
or construction or, where applicable, the amount attributed to that asset
when initially recognised in accordance with the specific requirements of
other IFRSs, eg IFRS 2Share-based Payment.
Fair valueis the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants
at the measurement date.(See IFRS 13Fair Value Measurement).
Investmentpropertyis property(land or a building—or part of a
building—or both)held (by the owner or by the lessee under a finance
lease) to earn rentals or for capital appreciation or both, rather than for:
(a) use in the production or supply of goods or servicesor for
administrative purposes; or
(b) sale in the ordinary course of business.
Owner-occupied propertyis property held (by the owner or by the lessee
under a finance lease)for use in the production or supply of goods or
services or for administrative purposes.
6 [Deleted]A property interestthat is held by a lessee under an operating
lease may be classified and accounted for as investment property if,and
only if, the property would otherwisemeet the definition of an
investment property and the lessee uses the fair value model set out in
paragraphs 33–55 for the asset recognised.This classification alternative
is availableon a property-by-propertybasis. However,once this
classification alternative is selected for one such property interest held
under an operating lease,all property classified as investment property
shall be accountedfor using the fair value model. When this
classification alternative is selected,any interest so classified is included
in the disclosures required by paragraphs 74–78.
7 Investment property is held to earn rentals or for capital appreciation or both.
Therefore, an investment property generates cash flows largely independently of
the other assets held by an entity.This distinguishes investment property from
owner-occupied property.The production or supply of goods or services (or the
use of property for administrative purposes)generatescash flows that are
attributable not only to property, but also to other assets used in the production
or supply process.IAS 16 Property,Plant and Equipmentand [draft]IFRS X Leases
apply applies to owner-occupied property.
8 The following are examples of investment property:
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(a) land held for long-term capital appreciation rather than for short-term
sale in the ordinary course of business.
(b) land held for a currently undetermined future use.(If an entity has not
determined that it will use the land as owner-occupied property or for
short-term sale in the ordinary course of business, the land is regarded as
held for capital appreciation.)
(c) a building owned by the entity (or held by the entity under a finance
lease) and leased out under one or more operating Type B leases.
(d) a building that is vacant but is held to be leased out under one or more
operating Type B leases.
(e) property that is being constructed or developed forfuture use as
investment property.
9 The following are examples of items that are not investment property and are
therefore outside the scope of this Standard:
(a) property intended for sale in the ordinary course of business or in the
process of construction or developmentfor such sale (see IAS 2
Inventories), for example,property acquired exclusively with a view to
subsequent disposal in the near future or for development and resale.
(b) property being constructed or developed on behalf of third parties (see
IAS 11Construction Contracts).
(c) owner-occupied property (seeIAS 16 and [draft] IFRS X), including
(among other things)property held for future use as owner-occupied
property,property held for future development and subsequent use as
owner-occupied property,property occupied by employees (whether or
not the employeespay rent at market rates) and owner-occupied
property awaiting disposal.
(d) [deleted]
(e) property that is leased to another entity under a finance Type A lease.
10 Some properties comprise a portion that is held to earn rentals or for capital
appreciation and another portion thatis held for use in the production or
supply of goods or services or for administrative purposes.If these portions
could be sold separately (or leased out separately under a finance Type A lease),
an entity accounts for the portions separately.If the portions could not be sold
separately, the property is investment property only if an insignificant portion is
held for use in the production or supply of goods or servicesor for
administrative purposes.
11 In some cases, an entity provides ancillary services to the occupants of a property
it holds. An entity treats such a property as investment property if the services
are insignificant to the arrangement as a whole.An example is when the owner
of an office building provides security and maintenance services to the lessees
who occupy the building.
12 In other cases,the services provided are significant.For example,if an entity
owns and manages a hotel,services provided to guests are significant to the
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arrangement as a whole.Therefore, an owner-managed hotel is owner-occupied
property, rather than investment property.
13 It may be difficult to determine whether ancillary services are so significant that
a property does not qualify as investment property.For example, the owner of a
hotel sometimestransfers some responsibilitiesto third parties under a
management contract.The terms of such contracts vary widely.At one end of
the spectrum,the owner’s position may,in substance,be that of a passive
investor. At the other end of the spectrum,the owner may simply have
outsourced day-to-dayfunctions while retaining significant exposure to
variation in the cash flows generated by the operations of the hotel.
14 Judgement is needed to determine whether a property qualifies as investment
property. An entity develops criteria so that it can exercise that judgement
consistently in accordance with the definition of investment property and with
the related guidance in paragraphs 7–13.Paragraph 75(c) requires an entity to
disclose these criteria when classification is difficult.
15 In some cases,an entity owns property that is leased to,and occupied by,its
parent or another subsidiary. The property does notqualify as investment
property in the consolidated financialstatements,because the property is
owner-occupied from the perspectiveof the group. However, from the
perspective of the entity that owns it,the property is investment property if it
meets the definition in paragraph 5.Therefore, the lessor treats the property as
investment property in its individual financial statements.
Recognition
16 Investment property shall be recognised as an asset when, and only when:
(a) it is probable that the future economic benefits that are associated
with the investment property will flow to the entity; and
(b) the cost of the investment property can be measured reliably.
17 An entity evaluates under this recognition principle all its investment property
costs at the time they are incurred.These costs include costs incurred initially to
acquire an investmentproperty and costsincurred subsequently to add to,
replace part of, or service a property.
18 Under the recognition principle in paragraph 16, an entity does not recognise in
the carrying amountof an investmentproperty the costsof the day-to-day
servicing of such a property.Rather, these costs are recognised in profit or loss
as incurred. Costs of day-to-day servicing are primarily the cost of labour and
consumables,and may include the cost of minor parts.The purpose of these
expenditures is often described as for the ‘repairs and maintenance’of the
property.
19 Parts of investment properties may have been acquired through replacement.
For example,the interior walls may be replacements of original walls.Under
the recognition principle,an entity recognises in the carrying amount ofan
investmentproperty the cost of replacing part of an existing investment
property at the time that cost is incurred if the recognition criteria are met.The
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carrying amount of those parts that are replaced is derecognised in accordance
with the derecognition provisions of this Standard.
Measurement at recognition
20 An investmentproperty shall be measuredinitially at its cost.
Transaction costs shall be included in the initial measurement.
21 The cost of a purchased investment property comprises its purchase price and
any directly attributable expenditure. Directly attributable expenditure
includes, for example, professional fees for legal services, property transfer taxes
and other transaction costs.
22 [Deleted]
23 The cost of an investment property is not increased by:
(a) start-up costs (unless they are necessary to bring the property to the
condition necessary for itto be capable ofoperating in the manner
intended by management),
(b) operating losses incurred before the investment property achieves the
planned level of occupancy, or
(c) abnormal amounts of wasted material,labour or other resources
incurred in constructing or developing the property.
24 If payment for an investment property is deferred,its cost is the cash price
equivalent. The difference between this amountand the total payments is
recognised as interest expense over the period of credit.
25 The initial cost of a property interest held under a lease and classified as an
investment property shall be as prescribed for a finance lease by paragraph 20 of
IAS 17, ie the asset shallbe recognised at the lower ofthe fair value ofthe
property and the present value of the minimum lease payments.An equivalent
amount shall be recognised asa liability in accordance with that same
paragraph. A lessee shallinitially measure a right-of-use assetclassified as
investment property in accordance with [draft] IFRS X.
26 [Deleted] Any premium paid for a lease is treated as part of the minimum lease
payments for this purpose, and is therefore included in the cost of the asset, but
is excluded from the liability. If a property interestheld under a lease is
classified as investment property,the item accounted for at fair value is that
interest and not the underlying property.Guidance on measuring the fair value
of a property interest is set out for the fair value model in paragraphs 33–35, 40,
41, 48, 50 and 52 and in IFRS 13. That guidance is also relevantto the
measurement of fair value when that value is used as cost for initial recognition
purposes.
27 One or more investmentpropertiesmay be acquired in exchange for a
non-monetary asset or assets, or a combination of monetary and non-monetary
assets.The following discussion refers to an exchange of one non-monetary asset
for another, but it also applies to all exchanges described in the preceding
sentence.The cost of such an investment property is measured at fair value
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unless (a)the exchange transaction lacks commercial substance or (b)the fair
value of neither the asset received nor the asset given up is reliably measurable.
The acquired asset is measured in this way even if an entity cannot immediately
derecognise the asset given up.If the acquired asset is not measured at fair
value, its cost is measured at the carrying amount of the asset given up.
28 An entity determineswhether an exchange transaction has commercial
substance by considering the extent to which its future cash flows are expected
to change as a result of the transaction. An exchange transaction has
commercial substance if:
(a) the configuration (risk, timing and amount) of the cash flows of the asset
received differs from the configuration ofthe cash flows ofthe asset
transferred, or
(b) the entity-specific value of the portion of the entity’s operations affected
by the transaction changes as a result of the exchange, and
(c) the difference in (a)or (b)is significant relative to the fair value of the
assets exchanged.
For the purpose of determining whether an exchangetransaction has
commercialsubstance,the entity-specific value ofthe portion of the entity’s
operations affected by the transaction shallreflectpost-tax cash flows.The
result of these analysesmay be clear withoutan entity having to perform
detailed calculations.
29 The fair value of an asset is reliably measurable if (a) the variability in the range
of reasonable fair value measurements is not significant for that asset or (b) the
probabilitiesof the various estimateswithin the range can be reasonably
assessed and used when measuring fair value.If the entity is able to measure
reliably the fair value of either the asset received or the asset given up, then the
fair value of the asset given up is used to measure cost unless the fair value of
the asset received is more clearly evident.
Measurement after recognition
Accounting policy
30 With the exceptions noted in paragraphs 32A and 34,an entity shall
choose as its accounting policy either the fair value model in paragraphs
33–55 or the cost model in paragraph 56 and shall apply that policy to all
of its investmentproperty (including right-of-use assetsclassified as
investment property).
31 IAS 8 Accounting Policies,Changesin Accounting Estimatesand Errorsstates that a
voluntary change in accounting policy shall be made only if the change results
in the financialstatements providing reliable and more relevant information
about the effects oftransactions,other events or conditions on the entity’s
financial position, financial performance or cash flows.It is highly unlikely that
a change from the fair value modelto the cost modelwill result in a more
relevant presentation.
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32 This Standard requiresall entitiesto measure the fair value ofinvestment
property, for the purpose of either measurement (if the entity uses the fair value
model) or disclosure (if it uses the cost model).An entity is encouraged, but not
required,to measure the fair value ofinvestment property on the basis ofa
valuation by an independentvaluer who holds a recognised and relevant
professionalqualification and has recent experiencein the location and
category of the investment property being valued.
32A An entity may:
(a) choose eitherthe fair value modelor the cost model for all
investment property backing liabilities that pay a return linked
directly to the fair value of,or returns from, specified assets
including that investment property; and
(b) choose either the fair value model or the cost model for all other
investment property, regardless of the choice made in (a).
32B Some insurers and other entities operate an internal property fund that issues
notional units, with some units held by investors in linked contracts and others
held by the entity.Paragraph 32A does not permit an entity to measure the
property held by the fund partly at cost and partly at fair value.
32C If an entity chooses different models for the two categoriesdescribed in
paragraph 32A,sales of investment property between pools of assets measured
using differentmodels shallbe recognised atfair value and the cumulative
change in fair value shallbe recognised in profit or loss.Accordingly,if an
investment property is sold from a pool in which the fair value model is used
into a pool in which the cost model is used, the property’s fair value at the date
of the sale becomes its deemed cost.
Fair value model
33 After initial recognition, an entity that chooses the fair value model shall
measure all of its investment property at fair value,except in the cases
described in paragraph 53.
34 [Deleted]When a property interest held by a lessee under an operating
lease is classified as an investment property under paragraph 6,
paragraph 30 is not elective; the fair value model shall be applied.
35 A gain or loss arising from a change in the fair value ofinvestment
property shall be recognised in profit or loss for the period in which it
arises.
36–
39 [Deleted]
40 When measuring the fair value of investment property in accordance with IFRS
13, an entity shall ensure that the fair value reflects, among other things, rental
income from current leases and other assumptions that market participants
would use when pricing investment property under current market conditions.
41 If a lessee classifies a right-of-use asset as investment property, it shall measure
the right-of-use asset at fair value and not the underlying property.Paragraph
25 [Draft]IFRS X specifies the basis for initialrecognition ofthe cost of an
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interest in a leased property a right-of-use asset classified as investment property.
Paragraph 33 requires the interest in the leased property to be remeasured,if
necessary,to fair value. In a lease negotiated When lease payments are at
market rates at the commencement date of the lease, the fair value of an interest
in a leased property at acquisition, net of all expected lease payments (including
those relating to recognised lease liabilities), should be zero.This fair value does
not change regardless of whether,for accounting purposes,a leased asset and
liability are recognised at fair value or at the present value of minimum lease
payments,in accordance with paragraph 20 ofIAS 17. Thus, remeasuring a
leased right-of-use asset from cost in accordance with paragraph 25 [draft] IFRS X
to fair value in accordance with paragraph 33 (taking into account the
requirements in paragraph 50)should not give rise to any initial gain or loss,
unless fair value is measured at different times.This could occur when an
election to apply the fair value model is made after initial recognition.
42–
47 [Deleted]
48 In exceptionalcases,there is clear evidence when an entity first acquires an
investment property (or when an existing property first becomes investment
property after a change in use) that the variability in the range of reasonable fair
value measurementswill be so great, and the probabilitiesof the various
outcomes so difficult to assess,that the usefulness of a single measure of fair
value is negated.This may indicate that the fair value of the property will not be
reliably measurable on a continuing basis (see paragraph 53).
49 [Deleted]
50 In determining the carrying amount of investment property under the fair value
model, an entity does not double-count assets or liabilities that are recognised as
separate assets or liabilities.For example:
(a) equipment such as lifts or air-conditioning is often an integral part of a
building and is generally included in the fair value of the investment
property, rather than recognised separatelyas property, plant and
equipment.
(b) if an office is leased on a furnished basis,the fair value ofthe office
generally includes the fair value ofthe furniture, because the rental
income relates to the furnished office.When furniture is included in the
fair value of investmentproperty,an entity doesnot recognise that
furniture as a separate asset.
(c) the fair value of investmentproperty excludesprepaid or accrued
operating Type B lease income,because the entity recognises itas a
separate liability or asset.
(d) the fair value of investment property held under a lease reflects expected
cash flows (including contingent rent that is variable lease payments
that are expected to become payable).Accordingly,if a valuation
obtained for a property is net of all payments expected to be made, it will
be necessary to add back any recognised lease liability,to arrive at the
carrying amount of the investment property using the fair value model.
51 [Deleted]
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52 In some cases, an entity expects that the present value of its payments relating
to an investment property (other than payments relating to recognised
liabilities)will exceed the present value of the related cash receipts.An entity
applies IAS 37Provisions,ContingentLiabilitiesand ContingentAssetsto determine
whether to recognise a liability and, if so, how to measure it.
Inability to measure fair value reliably
53 There is a rebuttable presumption that an entity can reliably measure the
fair value of an investment property on a continuing basis.However,in
exceptional cases, there is clear evidence when an entity first acquires an
investmentproperty (or when an existing property first becomes
investment property after a change in use)that the fair value ofthe
investment property is not reliably measurable on a continuing basis.
This arises when, and only when, the market for comparable properties is
inactive (eg there are few recent transactions,price quotations are not
current or observed transaction prices indicate that the seller was forced
to sell) and alternative reliable measurements of fair value (for example,
based on discounted cash flow projections) are not available.If an entity
determinesthat the fair value of an investment property under
construction is not reliably measurable but expects the fair value of the
property to be reliably measurable when construction is complete, it shall
measure that investment property under construction at cost until either
its fair value becomes reliably measurable or construction is completed
(whichever is earlier).If an entity determines that the fair value of an
investmentproperty (other than an investmentproperty under
construction) is not reliably measurable on a continuing basis, the entity
shall measure that investment property using the cost model in IAS 16 for
owned assets or [draft] IFRS X for right-of-use assets.The residual value of
the investment property shall be assumed to be zero.The entity shall
apply IAS 16 or [draft] IFRS X until disposal of the investment property.
53A Once an entity becomes able to measure reliably the fair value of an investment
property under construction that has previously been measured at cost, it shall
measure that property at its fair value.Once construction of that property is
complete, it is presumed that fair value can be measured reliably.If this is not
the case, in accordance with paragraph 53, the property shall be accounted for
using the cost model in accordance with IAS 16 for owned assets or [draft] IFRS X
for right-of-use assets.
53B The presumption that the fair value of investment property under construction
can be measured reliably can be rebutted only on initial recognition.An entity
that has measured an item of investment property under construction at fair
value may not conclude that the fair value of the completed investment property
cannot be measured reliably.
54 In the exceptional cases when an entity is compelled,for the reason given in
paragraph 53,to measure an investmentproperty using the costmodel in
accordance with IAS 16 or [draft]IFRS X,it measures at fair value all its other
investmentproperty,including investmentproperty under construction.In
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these cases,although an entity may use the costmodel for one investment
property,the entity shall continue to account for each of the remaining
properties using the fair value model.
55 If an entity has previously measured an investment property at fair value,
it shall continue to measure the property at fair value until disposal (or
until the property becomes owner-occupied property or the entity begins
to develop the property for subsequent sale in the ordinary course of
business)even if comparable market transactions become less frequent
or market prices become less readily available.
Cost model
56 After initial recognition,an entity thatchooses the costmodel shall
measure:
(a) investmentproperties all of its investmentproperties in
accordance with IAS 16’s requirements for that model,other than
those that meet the criteria to be classified as held for sale (or are
included in a disposal group that is classified as held for sale)in
accordance with IFRS 5Non-currentAssetsHeld for Sale and
Discontinued Operations;
(b) right-of-use assets classified as investment property,other than
those that are held for sale, in accordance with [draft] IFRS X; and
(c) all other investment properties in accordancewith the
requirements in IAS 16 for the cost model.
Investment properties that meet the criteria to be classified as held for
sale (or are included in a disposal group that is classified as held for sale)
shall be measured in accordance with IFRS 5.
Transfers
57 Transfers to,or from,investment property shall be made when,and only
when, there is a change in use, evidenced by:
(a) commencementof owner-occupation,for a transfer from
investment property to owner-occupied property;
(b) commencement of development with a view to sale,for a transfer
from investment property to inventories;
(c) end of owner-occupation,for a transfer from owner-occupied
property to investment property; or
(d) commencement of an operating a Type B lease or a short-term
lease to another party, for a transfer from inventories to
investment property.
(e) [deleted]
58 Paragraph 57(b)requiresan entity to transfer a property from investment
property to inventorieswhen, and only when, there is a change in use,
evidenced by commencement ofdevelopment with a view to sale.When an
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entity decides to dispose ofan investment property without development,it
continues to treat the property as an investment property until it is
derecognised (eliminated from the statement of financial position) and does not
treat it as inventory. Similarly, if an entity begins to redevelop an existing
investmentproperty for continued future use as investmentproperty,the
property remains an investment property and is not reclassified as
owner-occupied property during the redevelopment.
59 Paragraphs 60–65 apply to recognition and measurement issues that arise when
an entity uses the fair value model for investment property.When an entity uses
the cost model, transfers between investment property, owner-occupied
property and inventories do not change the carrying amount of the property
transferred and they do not change the cost of that property for measurement or
disclosure purposes.
60 For a transfer from investmentpropertycarried at fair value to
owner-occupied property or inventories,the property’s deemed cost for
subsequent accounting in accordance with IAS 16,[draft] IFRS X or IAS 2
shall be its fair value at the date of change in use.
60A When a right-of-use asset becomes owner-occupied property in accordance with
paragraph 60 and a lessee classifies the lease as a Type B lease,the lessee shall
include the difference between the fair value of the right-of-use asset and the
carrying amount of the lease liability at the date of change in use as part of the
remaining cost of the lease.
61 If an owner-occupied property becomes an investment property that will
be carried at fair value,an entity shall apply IAS 16 for owned assets or
[draft] IFRS X for right-of-use assets up to the date of change in use.The
entity shall treat any difference at that date between the carrying amount
of the property in accordance with IAS 16 or [draft]IFRS X and its fair
value in the same way as a revaluation in accordance with IAS 16.
62 Up to the date when an owner-occupied property becomesan investment
property carried at fair value,an entity depreciates the property (or amortises
the right-of-use assetif the entity classifies right-of-use assets as investment
property) and recognises any impairment losses that have occurred.The entity
treats any difference at that date between the carrying amount of the property
in accordance with IAS 16 or [draft] IFRS X and its fair value in the same way as a
revaluation in accordance with IAS 16.In other words:
(a) any resulting decreasein the carrying amount of the property or
right-of-use asset is recognised in profit or loss.However,to the extent
that an amount is included in revaluation surplus for that property or
right-of-use asset,the decrease isrecognised in other comprehensive
income and reduces the revaluation surplus within equity.
(b) any resulting increase in the carrying amount is treated as follows:
(i) to the extent that the increase reverses a previous impairment
loss for that property or right-of-useasset,the increaseis
recognised in profit or loss.The amount recognised in profit or
loss does not exceed the amount needed to restore the carrying
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amount to the carrying amount that would have been
determined (net of depreciation or amortisation) had no
impairment loss been recognised.
(ii) any remaining part of the increaseis recognised in other
comprehensive income and increasesthe revaluation surplus
within equity. On subsequent disposal of the investment
property,the revaluation surplusincluded in equity may be
transferred to retained earnings.The transfer from revaluation
surplus to retained earnings is not made through profit or loss.
63 For a transfer from inventories to investmentproperty thatwill be
carried at fair value, any difference between the fair value of the property
at that date and its previous carrying amount shallbe recognised in
profit or loss.
64 The treatment of transfers from inventories to investment property that will be
carried at fair value is consistent with the treatment of sales of inventories.
65 When an entity completesthe construction or developmentof a
self-constructed investment property that will be carried at fair value, any
difference between the fair value of the property at that date and its
previous carrying amount shall be recognised in profit or loss.
Disposals
66 An investmentproperty shallbe derecognised (eliminated from the
statementof financialposition)on disposalor when the investment
property is permanently withdrawn from use and no future economic
benefits are expected from its disposal.
67 The disposal of an investment property may be achieved by sale or by entering
into a finance Type A lease.In determining the date of disposal for investment
property that is sold,an entity applies the criteria in IAS 18 for recognising
revenue from the sale ofgoods and considersthe related guidance in the
illustrative examples accompanying IAS 18.IAS 17 [Draft]IFRS X applies to a
disposaleffected by entering into a finance Type A lease and to a sale and
leaseback transaction.
68 If, in accordance with the recognition principle in paragraph 16,an entity
recognises in the carrying amount of an asset the cost of a replacement for part
of an investment property, it derecognises the carrying amount of the replaced
part. For investment property accounted for using the cost model,a replaced
part may not be a part that was depreciated separately.If it is not practicable for
an entity to determine the carrying amount of the replaced part, it may use the
cost of the replacement as an indication of what the cost of the replaced part
was at the time it was acquired or constructed.Under the fair value model, the
fair value of the investment property may already reflect that the part to be
replaced has lost its value.In other cases it may be difficult to discern how
much fair value should be reduced for the part being replaced.An alternative to
reducing fair value for the replaced part, when it is not practical to do so, is to
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include the cost of the replacement in the carrying amount of the asset and then
to reassess the fair value,as would be required for additions notinvolving
replacement.
69 Gains or losses arising from the retirement or disposalof investment
property shall be determined as the difference between the net disposal
proceeds and the carrying amount of the asset and shall be recognised in
profit or loss (unless IAS 17 requires otherwise on a sale and leaseback) in
the period of the retirement or disposal (unless [draft]IFRS X requires
otherwise).
70 The consideration receivable on disposal of an investment property is recognised
initially at fair value. In particular,if payment for an investment property is
deferred,the consideration received is recognised initially atthe cash price
equivalent.The difference between the nominal amount of the consideration
and the cash price equivalent is recognised as interest revenue in accordance
with IAS 18 using the effective interest method.
71 An entity applies IAS 37 or other Standards, as appropriate, to any liabilities that
it retains after disposal of an investment property.
72 Compensation from third partiesfor investmentpropertythat was
impaired,lost or given up shall be recognised in profit or loss when the
compensation becomes receivable.
73 Impairments or losses of investment property, related claims for or payments of
compensation from third parties and any subsequent purchase or construction
of replacementassetsare separate economic eventsand are accounted for
separately as follows:
(a) impairments of investment property are recognised in accordance with
IAS 36;
(b) retirementsor disposalsof investmentproperty are recognised in
accordance with paragraphs 66–71 of this Standard;
(c) compensation from third partiesfor investmentproperty that was
impaired, lost or given up is recognised in profit or loss when it becomes
receivable; and
(d) the cost of assets restored,purchased or constructed as replacements is
determined in accordance with paragraphs 20–29 of this Standard.
Disclosure
Fair value model and cost model
74 The disclosures below apply in addition to those in IAS 17 [draft]IFRS X. In
accordance with IAS 17 [draft]IFRS X, the owner of an investment property
provides lessors’disclosures about leases into which it has entered.An entity
that holds an investment property under a finance or operating lease provides
lessees’disclosuresas required by IFRS X for finance leasesand lessors’
disclosures for any operating leases into which it has entered.
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75 An entity shall disclose:
(a) whether it applies the fair value model or the cost model.
(b) [deleted]if it applies the fair value model,whether,and in what
circumstances,property interests held under operating leases are
classified and accounted for as investment property.
(c) when classification is difficult (see paragraph 14),the criteria it
uses to distinguish investmentproperty from owner-occupied
property and from property held for sale in the ordinary course of
business.
(d) [deleted]
(e) the extentto which the fair value of investmentproperty (as
measured or disclosed in the financial statements)is based on a
valuation by an independent valuer who holds a recognised and
relevant professionalqualification and has recent experience in
the location and category of the investment property being valued.
If there has been no such valuation, that fact shall be disclosed.
(f) the amounts recognised in profit or loss for:
(i) rental income from investment property;
(ii) direct operating expenses (including repairs and
maintenance)arising from investment property that
generated rental income during the period; and
(iii) direct operating expenses (including repairs and
maintenance)arising from investmentproperty thatdid
not generate rental income during the period.
(iv) the cumulative change in fair value recognised in profit or
loss on a sale of investment property from a pool of assets
in which the cost model is used into a pool in which the fair
value model is used (see paragraph 32C).
(g) the existence and amounts of restrictions on the realisability of
investment property or the remittance of income and proceeds of
disposal.
(h) contractual obligations to purchase, construct or develop
investment property or for repairs, maintenance or
enhancements.
Fair value model
76 In addition to the disclosures required by paragraph 75,an entity that
applies the fair value model in paragraphs 33–55 shall disclosea
reconciliation between the carrying amounts of investment property at
the beginning and end of the period, showing the following:
(a) additions,disclosing separately those additions resulting from
acquisitions and those resulting from subsequentexpenditure
recognised in the carrying amount of an asset;
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(b) additions resulting from acquisitions through business
combinations;
(c) assets classified as held for sale or included in a disposal group
classified as held for sale in accordance with IFRS 5 and other
disposals;
(d) net gains or losses from fair value adjustments;
(e) the net exchange differences arising on the translation ofthe
financialstatements into a different presentation currency,and
on translation of a foreign operation into the presentation
currency of the reporting entity;
(f) transfers to and from inventories and owner-occupied property;
and
(g) other changes.
77 When a valuation obtained for investmentproperty is adjusted
significantly for the purpose of the financial statements,for example to
avoid double-counting ofassetsor liabilities that are recognised as
separate assets and liabilities as described in paragraph 50,the entity
shall disclose a reconciliation between the valuation obtained and the
adjusted valuation included in the financial statements,showing
separately the aggregate amount of any recognised lease obligations lease
liabilities that have been added back, and any other significant
adjustments.
78 In the exceptionalcases referred to in paragraph 53,when an entity
measures investment property using the cost model in IAS 16 or [draft]
IFRS X, the reconciliation required byparagraph 76shall disclose
amounts relating to that investment property separately from amounts
relating to otherinvestmentproperty. In addition, an entity shall
disclose:
(a) a description of the investment property;
(b) an explanation of why fair value cannot be measured reliably;
(c) if possible, the range of estimates within which fair value is highly
likely to lie; and
(d) on disposal of investment property not carried at fair value:
(i) the fact that the entity has disposed of investment property
not carried at fair value;
(ii) the carrying amountof that investmentproperty atthe
time of sale; and
(iii) the amount of gain or loss recognised.
Cost model
79 In addition to the disclosures required by paragraph 75,an entity that
applies the cost model in paragraph 56 shall disclose:
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(a) the depreciation or amortisation methods used;
(b) the useful lives or the depreciation or amortisation rates used;
(c) the gross carrying amount and the accumulated depreciation or
amortisation (aggregated with accumulated impairment losses) at
the beginning and end of the period;
(d) a reconciliation of the carrying amount of investment property at
the beginning and end of the period, showing the following:
(i) additions,disclosing separately those additions resulting
from acquisitionsand those resulting from subsequent
expenditure recognised as an asset;
(ii) additionsresulting from acquisitionsthrough business
combinations;
(iii) assets classified as held for sale or included in a disposal
group classified as held for sale in accordance with IFRS 5
and other disposals;
(iv) depreciation or amortisation;
(v) the amount of impairmentlossesrecognised,and the
amount of impairment losses reversed, during the period in
accordance with IAS 36;
(vi) the net exchange differences arising on the translation of
the financial statementsinto a different presentation
currency, and on translation of a foreign operation into the
presentation currency of the reporting entity;
(vii) transfersto and from inventories and owner-occupied
property; and
(viii) other changes; and
(e) the fair value of investment property.In the exceptionalcases
described in paragraph 53, when an entity cannot measure the fair
value of the investment property reliably, it shall disclose:
(i) a description of the investment property;
(ii) an explanation of why fair value cannotbe measured
reliably; and
(iii) if possible, the range of estimates within which fair value is
highly likely to lie.
Transitional provisions
Fair value model
80 [Deleted]An entity that has previously applied IAS 40 (2000) and elects for
the first time to classify and account for some or all eligible property
interestsheld under operating leasesas investmentpropertyshall
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recognise the effect of that election as an adjustment to the opening
balance of retained earnings for the period in which the election is first
made.In addition:
(a) if the entity has previouslydisclosed publicly(in financial
statements or otherwise) the fair value of those property interests
in earlier periods (measured on a basis that satisfies the definition
of fair value in IFRS 13), the entity is encouraged, but not required:
(i) to adjust the opening balance of retained earnings for the
earliestperiod presented for which such fair value was
disclosed publicly; and
(ii) to restate comparative information for those periods; and
(b) if the entity has not previously disclosed publicly the information
described in (a),it shall not restate comparative information and
shall disclose that fact.
81 This Standard requires a treatment different from that required by IAS 8.IAS 8
requirescomparative information to be restated unlesssuch restatementis
impracticable.
82 When an entity first appliesthis Standard,the adjustmentto the opening
balance of retained earnings includes the reclassification of any amount held in
revaluation surplus for investment property.
Cost model
83 IAS 8 applies to any change in accounting policies that is made when an entity
first applies this Standard and chooses to use the cost model.The effect of the
change in accounting policies includes the reclassification of any amount held
in revaluation surplus for investment property.
84 The requirements of paragraphs 27–29 regarding the initial measurement
of an investment property acquired in an exchange of assets transaction
shall be applied prospectively only to future transactions.
Effective date
85 An entity shallapply this Standard for annualperiods beginning on or after
1 January 2005. Earlier application is encouraged.If an entity applies this
Standard for a period beginning before 1 January 2005, it shall disclose that fact.
85A IAS 1 Presentation ofFinancialStatements(as revised in 2007) amended the
terminology used throughout IFRSs.In addition it amended paragraph 62.An
entity shall apply those amendments for annual periods beginning on or after
1 January 2009.If an entity applies IAS 1 (revised 2007) for an earlier period, the
amendments shall be applied for that earlier period.
85B Paragraphs 8, 9, 48, 53, 54 and 57 were amended, paragraph 22 was deleted and
paragraphs 53A and 53B were added byImprovements to IFRSsissued in May 2008.
An entity shall apply those amendmentsprospectively forannual periods
beginning on or after 1 January 2009.An entity is permitted to apply the
amendments to investment property under construction from any date before
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1 January 2009 provided that the fair values ofinvestment properties under
construction were measured at those dates.Earlier application is permitted.If
an entity applies the amendments for an earlier period it shall disclose that fact
and at the same time apply the amendments to paragraphs 5 and 81E of IAS 16
Property,Plant and Equipment.
85C IFRS 13, issued in May 2011, amended the definition of fair value in paragraph 5,
amended paragraphs 26,29, 32, 40, 48, 53, 53B,78–80 and 85B and deleted
paragraphs36–39, 42–47, 49, 51 and 75(d). An entity shall apply those
amendments when it applies IFRS 13.
85D [an effective date paragraph to be inserted]
Withdrawal of IAS 40 (2000)
86 This Standard supersedes IAS 40Investment Property(issued in 2000).
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Approval by the Board of Leases published in May 2013
The Exposure DraftLeaseswas approved for publication by twelve of the sixteen members of
the InternationalAccounting StandardsBoard. MessrsKalavacherla and Zhang voted
against its publication.Their alternative views are set out after the Basis for Conclusions.
Ms Tokar and Mr Kabureck abstained from voting in view of their recent appointment to the
IASB.
Hans Hoogervorst Chairman
Ian Mackintosh Vice-Chairman
Stephen Cooper
Philippe Danjou
Martin Edelmann
Jan Engström
Patrick Finnegan
Amaro Luiz de Oliveira Gomes
Gary Kabureck
Prabhakar Kalavacherla
Patricia McConnell
Takatsugu Ochi
Darrel Scott
Chung Woo Suh
Mary Tokar
Wei-Guo Zhang
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