Rent free period received prior to implementation of IFRS16

All topics related to IFRS Standards.
Post Reply
smurdoch78
Posts: 2
Joined: 20 Mar 2023, 14:10

Rent free period received prior to implementation of IFRS16

Post by smurdoch78 »

Hi

We have a lease which commenced Oct 2020 for 15 years. We received a 3 month rent free period at the start of the lease. Under old rules the rent-free amount was spread over the life of the lease. So we currently have a figure on our balance sheet reflecting the balance of remaining deferred rent free amount.

My question is what do we do with this on transition (I work for public sector organisation so implementation later than private sector.

I can see plenty of guidance on rent free periods where it's a new lease starting under IFRS16. But nothing on what to do if you have already received the benefit of the incentive prior to IFRS16 coming in.

So does the balance get reversed out and we only account for lease payments going forward. Or do we adjust lease payments each year by the deferred incentive. In which case should i reduce the ROU asset and the liability by the deferred amount left to unwind?

Thanks in advance
User avatar
Marek Muc
Site Admin
Posts: 3308
Joined: 15 Oct 2018, 17:21
Contact:

Re: Rent free period received prior to implementation of IFRS16

Post by Marek Muc »

It's been a long time since I last thought about transition from IAS 17 :) My hunch is that you need to derecognise that deferred balance. Have you looked into Appendix C to IFRS 16?
smurdoch78
Posts: 2
Joined: 20 Mar 2023, 14:10

Re: Rent free period received prior to implementation of IFRS16

Post by smurdoch78 »

Thanks Mark
Yeah transition says measure lease liability at present value of remaining payments discounted. Then asset as amount equal to lease liability adjusted by amount of any pre-paid or accrued lease payments.
I was looking at measuring asset at full value of lease payments (therefore depreciating full value) but liability at amount less deferred amount. And then unwinding the deferred element each year and applying to the rent account. And then applying the adjusted amount to the liability each year.

But if IFRS16 says liability needs to be remaining value of payments to be made not sure that is right.
User avatar
Marek Muc
Site Admin
Posts: 3308
Joined: 15 Oct 2018, 17:21
Contact:

Re: Rent free period received prior to implementation of IFRS16

Post by Marek Muc »

It seems that you should derecognise that deferred balance upon transition to IFRS 16
Post Reply