IFRS 16 Lessee Involment before the lease

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E.Reis
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IFRS 16 Lessee Involment before the lease

Post by E.Reis »

Hey Guys

I have about regarding the costs incurred by the lessee before the leae.
IFRS clearly states that cost incurred, by the lessee should be treated iin accordance to IAS 16.

My doubt is related to the architectural projects fees incurred before the lease, whether they should be recognized as assets as per IAS 16 or recognized in P&L?

Backgroung: We contracted the arcchitecture firm to develop the drawings for the construction project, as we were construct the building ourselves, turns out the project got stalled for years, then the project resumed and a third party will constrctuct the building and lease it to us.


Thank you in advance!
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Marek Muc
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Re: IFRS 16 Lessee Involment before the lease

Post by Marek Muc »

I don't see how you cloud treat these expenditures as an asset, the construction eventually was done by another entity that owns the building, you don't have any future economic benefits from your architectural project fees, right?

did the third party use your architectural works? did they reimburse you?
E.Reis
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Re: IFRS 16 Lessee Involment before the lease

Post by E.Reis »

Thank you Marek

I agree with your assessment and it's what I defend.

The construction is yet to finish, but at the moment there is no agreement to reimburse the architectural project fees.
Last edited by E.Reis on 01 Jul 2020, 12:09, edited 1 time in total.
Irfan Mustafa
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Re: IFRS 16 Lessee Involment before the lease

Post by Irfan Mustafa »

The project was stalled for year and ur company does not seems to have the control of the asset over those year. I think ur company should have written off expenditures incurred on construction during those prior years.
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nauman
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Re: IFRS 16 Lessee Involment before the lease

Post by nauman »

I think there is a case for it to be capitalized as leasehold improvement. If as a result of the delay the cost no longer holds its value then it should be written off to P&L.
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Marek Muc
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Re: IFRS 16 Lessee Involment before the lease

Post by Marek Muc »

that would be a tough one to argue for, as architectural works are done before the actual construction even starts... how would you control or even identify architectural works in someone else's building?
E.Reis
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Re: IFRS 16 Lessee Involment before the lease

Post by E.Reis »

I'm of the opinion that these costs should be considered in P&L, unless a reimbursement agreement comes to the table.

Thank you, for your input. When time comes to discuss in depth with my colleagues I'll be better equipped.

PS:The building construction is using the initial architectural plans.
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Marek Muc
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Re: IFRS 16 Lessee Involment before the lease

Post by Marek Muc »

Well, if reimbursement is agreed, these costs will remain in P/L, but will be matched with corresponding income
E.Reis
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Re: IFRS 16 Lessee Involment before the lease

Post by E.Reis »

yes, to offset the losses.

:)
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