IFRS 16 retro bonuses

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MrJackX
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Joined: 25 Jan 2021, 14:02

IFRS 16 retro bonuses

Post by MrJackX »

Hello everyone,

We have an arrangement with a supplier that pays a premium to us if we lease out their equipment. It looks like a rebate which decreases the cost of the equipment, which itself is subsequently derecognised and turned into NIL. The final rebate is determined upon meeting certain commercial conditions (selling a predetermined volume of machinery from the same supplier). In other words, this rebate may change after commencement date. There are 2 questions with regard to this: 1) is it within the scope of IAS 16 or IFRS 16, since we have to determine the initial value of a fixed asset that is leased out? 2) how should one account for this rebate - a) recognise it as a one off charge in PL after receiving source documents stating the exact amount of rebate b) try to estimate the amount of rebate based on the historical data...and then add this estimation, thus reducing the initial investment in the CF calculation for the lease?
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Marek Muc
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Re: IFRS 16 retro bonuses

Post by Marek Muc »

I'm not clear on the fact pattern. You are a lessee that uses (leases) this equipment for your own purposes and a dealer of this equipment that sells it to third parties as well?
MrJackX
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Re: IFRS 16 retro bonuses

Post by MrJackX »

Marek, hello.

We are a lessor and we have a supplier, which is a third party. And then there's a lessee. A lessor, a supplier and a lessee all in all. The question relates to the accounting treatment from the lessor point of view. A supplier pays a bonus to us (a lessor). But the amount of the bonus is undefined at first. The bonus is determined some time after commencement date (when the lessor leases the equipment out). How would a lessor account for such a bonus?
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Marek Muc
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Re: IFRS 16 retro bonuses

Post by Marek Muc »

clear now, thanks

this seems to be a quite typical volume rebate, if it is contractual then I would estimate (anticipate) it and reduce the cost of asset
https://ifrscommunity.com/knowledge-bas ... nd-rebates

do you follow the guidance for dealer-lessors in IFRS 16?
https://ifrscommunity.com/knowledge-bas ... er-lessors
MrJackX
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Re: IFRS 16 retro bonuses

Post by MrJackX »

Thank you Marek, but I'm not sure the dealer-lessors guidance applies here. Not entirely sure. But the point about IAS 34.B23 seems to be applicable, since this 'rebate' is non-discretionary in nature. Thank you!
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Marek Muc
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Re: IFRS 16 retro bonuses

Post by Marek Muc »

coming back to the dealer-lessor matter,
what are your entries when you 1/ purchase the equipment and 2/ lease it out? Can you show us simplified debits and credits?
MrJackX
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Re: IFRS 16 retro bonuses

Post by MrJackX »

1/ purchase the equipment
Dr Equipment Cr Settlements
Dr Settlements Cr Cash

and 2/ lease it out
Dr PPE Cr Finance obligations
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Marek Muc
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Re: IFRS 16 retro bonuses

Post by Marek Muc »

hm, something is not right, when you lease out you should debit a financial asset and not PP&E, hm?
MrJackX
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Re: IFRS 16 retro bonuses

Post by MrJackX »

Sorry, yes, in terms of lessor accounting you have to recognize an investment in leasing. Again, we are a lessor not a lessee.
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Marek Muc
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Re: IFRS 16 retro bonuses

Post by Marek Muc »

but you do have a difference between the financial asset (investment in the lease) and the book value of the asset, to be recognised in P&L, right? In which P&L line do you show it?
MrJackX
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Re: IFRS 16 retro bonuses

Post by MrJackX »

not really, since the company has a local gaap, we have to derecognize the book value of the asset and then recognize the investment in leasing. Then we have to recognize financial income on this lease. So, we don't have purely IFRS accounting, we have to transform local gaap accounts to IFRS
Leo
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Re: IFRS 16 retro bonuses

Post by Leo »

Hi, I don't understand neither the accounting entry,

I understand the first one when you purchase the property :

1/ purchase the equipment
Dr Equipment Cr Settlements
Dr Settlements Cr Cash

But when you lease it out, why do you have to book something? Isn't it the renting revenue that you'll book into your P&L in revenue vs cash? and that's all?
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Marek Muc
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Re: IFRS 16 retro bonuses

Post by Marek Muc »

You need to derecognise the asset if this is a finance lease
Leo
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Re: IFRS 16 retro bonuses

Post by Leo »

Hi Marek,

Ok, I understand, so the entry would be

DT Financial assets ???

CR PPE

So the assets in general will not change
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