IFRS16 - Sublease - firm commitment

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Petr_H
Posts: 17
Joined: 27 Sep 2022, 05:37

IFRS16 - Sublease - firm commitment

Post by Petr_H »

Hello,

may I ask for a confirmation that our understanding of accounting treatment is correct for following transaction.

The situation is a little bit complicated but:

Subsdiary A from the group has ST lease contract with car supplier and its parent company is involved in the contract and guaranteess that it will buy the car after ST lease for fixed price determined at the beginning of contract. After the lease the car is sold or leased to another external customers

The rental expense of head lease during up to 1 year period is significantly below market ones because it would be necessary to depreciate the car for 10 years to equal depreciation and rental revenues from the cars (for head lessor)

During ST lease the car is rented to external customer for period shorter than 1 year (usually the same as head lease).

After the lease term the cars is transferrred to inventory for sales (singificantly much more frequent) or remains in fixed assets for next rental.

Is it correct that we will have to apply following approach in consolidated financial statements:
a) finance lease treatment for head lease because the group (subsidiary and parent together) has firm commitment to buy the car
b) apply finance lease for sublease to 3rd party customer during rental contract up to 1 year because the sublease is for major part of head lease term (IFRS 16.B58 b) => we will have to apply net investment in sublease approach

Thank you very much for your help and advice
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