IFRS 16 - Lessor Interest Income Recognition and Accrual

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SukithaF
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Joined: 16 Jun 2020, 19:33

IFRS 16 - Lessor Interest Income Recognition and Accrual

Post by SukithaF »

Hi All,

I had this problem when studying the IFRS 16 Lease standard. Let's assume the following scenario.
ABC Finance PLC is a listed company where the main focus of the company is to provide leases. Financial year end of the company falls on the 31st of March.
Let's assume that they give out a lease to Mr. John Smith based on the following terms.
Facility Amount: $1000,000
Int Rate: 10.00%
Commencement date: 05/03/2020
Rental amount: $32,267.19

My question is, do we have to recognize the interest from the period of 5th March to 31st of March? And accrue a portion of the interest to the current financial year? Because the rental due date is falling on the next financial year.

IFRS 16 para 75 says that "A lessor shall recognise finance income over the lease term, based on a pattern reflecting a constant periodic rate of return on the lessor’s net investment in the lease." But they don't give out any further instructions than that.
None of the illustrative examples given anywhere is on rental dates that fall in the middle of the month.
I'm personally of the view that it should be recognized because the customer has already received the benefits of the assets within the period considered. Hope somebody would be able to help me out.
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nauman
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Re: IFRS 16 - Lessor Interest Income Recognition and Accrual

Post by nauman »

Simply put, you start recognizing interest from the date you recognized the net investment in lease. The only bearing the date and amount of rental amount has on interest is the amount on which interest is calculated.
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Marek Muc
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Re: IFRS 16 - Lessor Interest Income Recognition and Accrual

Post by Marek Muc »

Could not agree more ;)

Plus, there's an excel example in our knowledge base, you can play with dates and see how it works

https://ifrscommunity.com/knowledge-bas ... easurement
SukithaF
Posts: 2
Joined: 16 Jun 2020, 19:33

Re: IFRS 16 - Lessor Interest Income Recognition and Accrual

Post by SukithaF »

nauman wrote: 17 Jun 2020, 09:17 Simply put, you start recognizing interest from the date you recognized the net investment in lease. The only bearing the date and amount of rental amount has on interest is the amount on which interest is calculated.
So to clarify, assuming that the start of the facility of the contract was the commencement date, and our reporting period ends on the 31st of March, we have to recognize and accrue interest up to the reporting date?
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Marek Muc
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Re: IFRS 16 - Lessor Interest Income Recognition and Accrual

Post by Marek Muc »

Yes
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