International Financial Reporting Standards: IFRS 16 Lease Accounting

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International Financial Reporting
1

Table of Contents
Introduction......................................................................................................................................3
Activity 1.........................................................................................................................................4
A...................................................................................................................................................4
B...................................................................................................................................................4
C...................................................................................................................................................5
Part 2..............................................................................................................................................13
Part 3..............................................................................................................................................15
A)...................................................................................................................................................15
B)...................................................................................................................................................15
Conclusion.....................................................................................................................................19
References......................................................................................................................................20
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Introduction
The internal financial reporting standard is those standards that are to be issued by the IFRS
foundation. It provides a basic to accounting and also helps in comparison across the
international boundaries. It also provides rules and regulation for preparation of books of
accounts. It also helps in changing the national accounting standard so that an international
standard can be maintained. It also helps as the financial statement of the company is based on
the going concern. Under this, it also shows that the accounts are to be maintained on an accrual
basis. The given assessment is based on the IFRS and the basis of the lease. IFRS 16 is based on
the lease contract. It helps in providing the information regarding the lease and it provides a lease
for more than 12 months as the condition is the assets should be not less in value.
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Activity 1
A
International Financial Reporting is a single accounting lessee. The lease agreement included
assets and liabilities as a whole for more than one year or can 12 months. While both lessees and
lessor come into the lease contract, the lessees get advantages to use the leased assets until the
period of agreement over on the condition that he cannot change its nature and if change then he
should be intimate to the lessor. IAS 17 is replaced and IFRS takes the place of IAS 16 and now
onwards IFRS 16 is applicable (Acharya and Ryan 2016).
Treatment of IFRS 16 for lease:
1. Help in recognize the leased assets and liabilities.
2. Aid to determine the amount of depreciation and interest.
3. Aid in differentiae the cash amount payment and also the amount of interest which is
shown in CFS means cash flow statement (Bushee, Goodman, and Sunder 2018).
B
Using IFRS is due to as it provides one method for every type of lease which is a more
convenient and simple process to determine the value of the lease for lessees (Epstein and
Jermakowicz 2010). IFRS 16 is related to the lease contract.
Under the lease contract, IFRS says that every lesser has a right over the lease assets such as the
right to use without changing its nature and size and this will help in determining the liability
associated with the same (Acharya and Ryan 2016).
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Exceptions:
 The lease is for a short period say for one year or up to. It means the lease is taken for a
maximum period of one year.
 Under the lease contract, those assets are leased who carry minimum or less amount in
value means money.
Changes under the lessee
Under the lease, the current value of the lease and also associated liability is being calculated.
This type of entry is recorded in the following manner
Right to use of assets A/c Dr.
To liability A/C
It is the requirement to calculate depreciation when payment is made during the period. To
calculate the depreciation charge, first, we need to identify the period for assets taken on lease
then the calculation process start.
C
i.
Calculation of Interest Rate:
Quarters Amount
0 (28,050)
1 1,950
2 1,950
5

3 1,950
4 1,950
5 1,950
6 1,950
7 1,950
8 1,950
9 1,950
10 1,950
11 1,950
12 1,950
13 1,950
14 1,950
15 1,950
16 1,950
17 1,950
18 1,950
19 1,950
Interest Rate 2.95%
Lease Schedule:
Quarte
r Amount Interest Installment Amount repaid Balance
0 30,00
0 - 1,95
0 1,950 28,05
0
1 28,05
0
82
8
1,95
0 1,122 26,92
8
2 26,92
8
79
5
1,95
0 1,155 25,77
3
3 25,77 76 1,95 1,189 24,58
6

3 1 0 4
4 24,584 726 1,950 1,224 23,360
5 23,36
0
69
0
1,95
0 1,260 22,09
9
6 22,09
9
65
2
1,95
0 1,298 20,80
2
7 20,80
2
61
4
1,95
0 1,336 19,46
6
8 19,46
6
57
5
1,95
0 1,375 18,09
0
9 18,09
0
53
4
1,95
0 1,416 16,67
5
10 16,67
5
49
2
1,95
0 1,458 15,21
7
11 15,21
7
44
9
1,95
0 1,501 13,71
6
12 13,71
6
40
5
1,95
0 1,545 12,17
1
13 12,17
1
35
9
1,95
0 1,591 10,58
0
14 10,58
0
31
2
1,95
0 1,638 8,94
3
15 8,94
3
26
4
1,95
0 1,686 7,25
7
16 7,25
7
21
4
1,95
0 1,736 5,52
1
17 5,52
1
16
3
1,95
0 1,787 3,73
4
18 3,73
4
11
0
1,95
0 1,840 1,89
4
19 1,89
4
5
6
1,95
0 1,894 (0
)
Journal Entries in the book of Roy Joy Ltd.
Date particulars L.F. Amount(Dr.
) Amount (Cr.)
1/1/2019 Lease Receivable a/c Dr. £ 30,000
To Asset a/c £ 30,000
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(Being freehold property purchased)
1/1/2019 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,950
(Being installment received)
31/3/2019 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,122
To Finance Income a/c £ 828
(Being installment received)
30/6/2019 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,155
To Finance Income a/c £ 795
(Being installment received)
30/9/2019 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,189
To Finance Income a/c £ 761
(Being installment received)
31/12/201
9 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,224
To Finance Income a/c £ 726
(Being installment received)
31/3/2020 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,260
To Finance Income a/c £ 690
(Being installment received)
8

30/6/2020 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,298
To Finance Income a/c £ 652
(Being installment received)
30/9/2020 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,336
To Finance Income a/c £ 614
(Being installment received)
31/12/202
0 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,375
To Finance Income a/c £ 575
(Being installment received)
31/3/2021 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,416
To Finance Income a/c £ 534
(Being installment received)
30/6/2021 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,458
To Finance Income a/c £ 492
(Being installment received)
30/9/2021 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,501
To Finance Income a/c £ 449
(Being installment received)
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31/12/202
1 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,545
To Finance Income a/c £ 405
(Being installment received)
31/3/2022 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,591
To Finance Income a/c £ 359
(Being installment received)
30/6/2022 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,638
To Finance Income a/c £ 312
(Being installment received)
30/9/2022 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,686
To Finance Income a/c £ 264
(Being installment received)
31/12/202
2 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,736
To Finance Income a/c £ 214
(Being installment received)
31/3/2023 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,787
To Finance Income a/c £ 163
10

(Being installment received)
30/6/2023 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,840
To Finance Income a/c £ 110
(Being installment received)
30/9/2023 Bank a/c Dr. £ 1,950
To Lease Receivable a/c £ 1,894
To Finance Income a/c £ 56
(Being installment received)
31/12/202
3 Bank a/c Dr. £ 800
To Rental Income a/c £ 800
(Being rental income received)
31/3/2024 Bank a/c Dr. £ 800
To Rental Income a/c £ 800
(Being installment received)
30/6/2024 Bank a/c Dr. £ 800
To Rental Income a/c £ 800
(Being installment received)
30/9/2024 Bank a/c Dr. £ 800
To Rental Income a/c £ 800
(Being installment received)
31/12/202
4 Bank a/c Dr. £ 800
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To Rental Income a/c £ 800
(Being installment received)
31/3/2025 Bank a/c Dr. £ 800
To Rental Income a/c £ 800
(Being installment received)
30/6/2025 Bank a/c Dr. £ 800
To Rental Income a/c £ 800
(Being installment received)
30/9/2025 Bank a/c Dr. £ 800
To Rental Income a/c £ 800
(Being installment received)
**for the coming two years of the accounting period the income from rent should be taken at
£800 per quarter.
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