IFRS 16 - Leases (Parent- Subsidiary) recognition and measurement.

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prasadshinde03
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IFRS 16 - Leases (Parent- Subsidiary) recognition and measurement.

Post by prasadshinde03 »

What do you do when a parent leases an asset (in this case, building space) to a subsidiary under AASB 16? The lease is neither low value nor short-term, so it stands that the subsidiary would recognise an asset on their books, but from the parents perspective this is an operating lease so it does not de-recognise the asset from its books. Hence on consolidation, we end up with the same asset appearing twice? Is it just a matter of eliminating the ROU asset and liability consolidation?
JRSB
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Re: IFRS 16 - Leases (Parent- Subsidiary) recognition and measurement.

Post by JRSB »

In it's own books the parent is a lessor.

From a group perspective, it's just an item of PPE (assuming they own the asset and don't lease themselves?) - yes consol journal as the subsidiary doesn't have a RoU asset/liability at consol level.
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Marek Muc
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Re: IFRS 16 - Leases (Parent- Subsidiary) recognition and measurement.

Post by Marek Muc »

yep, IFRS 16 complicated consolidation as well :)

One of the solutions is that the lessee reports the lease as an old school operating lease in consolidation software which will enable automatic intragroup eliminations. Or you can make manual consolidation adjustments. Anyway, it's additional work unfortunately.
prasadshinde03
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Re: IFRS 16 - Leases (Parent- Subsidiary) recognition and measurement.

Post by prasadshinde03 »

Thanks for the responses.

Just to confirm, the parent entity would still classify the lease as operating lease right?
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Marek Muc
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Re: IFRS 16 - Leases (Parent- Subsidiary) recognition and measurement.

Post by Marek Muc »

Yes, both entities need to follow IFRS 16 in their separate financial statements, so the parent accounts for operating lease, and the subsidiary recognises RoU

It's not the only case when you need to make such 'intrusive' consolidation entries. For example a subsidiary may construct a fixed asset for a parent, the parent recognises an asset under IAS 16 and the subsidiary recognises revenue under IFRS 15, no easy intra-group elimination in this case as well
JRSB
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Re: IFRS 16 - Leases (Parent- Subsidiary) recognition and measurement.

Post by JRSB »

Are AASBs exact cut-and-paste copies of IFRSs?

Why don't they just adopt IFRS? :mrgreen:
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Marek Muc
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Re: IFRS 16 - Leases (Parent- Subsidiary) recognition and measurement.

Post by Marek Muc »

Well, probably they convinced politicians that it would be too dangerous to adopt IFRS directly without local oversight...
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nauman
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Re: IFRS 16 - Leases (Parent- Subsidiary) recognition and measurement.

Post by nauman »

We have this case where our investment properties are also leased out to retail units within the group (in addition to leasing them to third party tenants as well). As a consequence, we reverse out all the balances pertaining to the intergroup leases and eliminate lease income against depreciation of right of use asset and finance cost. Naturally, they do not match so we have to take care of the delta left in the end.

Gets even more interesting when we will move to the second year as there would be adjustments going into opening retained earnings.
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