IFRS 16 -Lease Payments

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E.Reis
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IFRS 16 -Lease Payments

Post by E.Reis »

I have a doutb regarding the type of payments this would be.

We enter into a lease agreement and the payments are assumed to be variable.

These variable payments are linked to a Pension Fund/ lessor anual obligations ( based on an actuarial valuation) during the lease term.
That said once an actuarial valuation is made to define the Pension Fund obligations the lease payments would be remeasured.

1)My doubt is whether we consider the payments to measure the lease liabilitly based on te current defined obligation of the Fund and remeasure the lease liability once a valuation by the Pension Fund/lessor is made ?

2)Would the lease payments in this case considered to be linked to an index or other type of variable lease payments that don't give rise to a lease liabilitly ?
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Marek Muc
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Re: IFRS 16 -Lease Payments

Post by Marek Muc »

I would include them in the lease liability, as they don't depend on future activity of a lessee or an underlying asset. And I would use payments as calculated using current valuation of this pension fund obligation.

Why are these payments linked to pension fund anyway? Is it a way of financing payments from the fund?
E.Reis
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Re: IFRS 16 -Lease Payments

Post by E.Reis »

It's a brand new building, constructed with the assets of the Fund ( closed fund of the entity's employees), being this building the main asset of the Fund. Therefore to make sure the Pension Fund covers it's obligations, current and future, the lease payments were tied to the Fund's needs.

Also, it's a way for the Fund/lessor to maximize retruns on it's assets and finance it's future pension obligations.

What type of variable payments this would be classified?
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Marek Muc
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Re: IFRS 16 -Lease Payments

Post by Marek Muc »

I see, as I wrote before, I would include them in a lease liability similarly to payments that depend on index/rate. The payments that you mentioned do not depend on future activity of a lessee or an underlying asset and therefore the is no reason to exclude them from lease liability
E.Reis
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Re: IFRS 16 -Lease Payments

Post by E.Reis »

Thank you Marek.
Exceptional orientation here.
Hope I can contribute better to the Forum in the future.
E.Reis
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Re: IFRS 16 -Lease Payments

Post by E.Reis »

Regarding de discount rate of the lease, if we are closely working with the Fund lessor, there is no presumable restriction of informations.
I assume we could in this case compute the rate implicit in the lease.

There is a purchase option at the end of lease or an option to celebrate a new contract/extension ( which the lessor may enforce).

I have a doubt regarding how to compute the IRL, beacause if we exercise the purchase option for a value previouly determined there is no realy unguaranteed residual value to know.
1) Or do we still need to know the ungarateed residual value for the purpose of the IRL even if we are certain to exercise a purchase option?

If we don't exercise the purchse option, the lease must go on (we need the building). As long as the Fund/lessor has beneficiaries the lease is carried on and once the Fund becomes extinct the asset reverts to to the lessee at no cost.

2) In this case I think there is no ungaranteed residual value to consider, what you think?

It's a unique arrangement with all this features :)
Last edited by E.Reis on 29 Jun 2019, 19:21, edited 1 time in total.
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Marek Muc
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Re: IFRS 16 -Lease Payments

Post by Marek Muc »

I think it's best to start with 1/ lease term and 2/ lease payments, and then the assumptions for discount rate should be consistent.

When you say that the extension option can be enforced by the Fund, then you must include period covered by this option in lease term and lease payments right?
When measuring the lease - will you include the payment under the purchase option in lease payments?
E.Reis
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Re: IFRS 16 -Lease Payments

Post by E.Reis »

Unless the purchase option is exercised, the lease is extended/ celebrated a new contract ( technically it's not an obligatory extension, it's that there problably won't be another asset readily available at the end of the lease, so if we don't purchase we must extend).

Because law sets a maximum term of 30 years, the extension option cannot be considered, I think.
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Marek Muc
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Re: IFRS 16 -Lease Payments

Post by Marek Muc »

When measuring the lease - will you include the payment under the purchase option in lease payments?
E.Reis
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Re: IFRS 16 -Lease Payments

Post by E.Reis »

I would include the option in the lease liabilitly.
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Marek Muc
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Re: IFRS 16 -Lease Payments

Post by Marek Muc »

OK so my approach is the same as yours, i.e. the payment under the purchase option is included in lease payments and therefore there is no unguaranteed residual value
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