IFRS 16 Advance Payment

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Muzaffar
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Joined: 31 May 2021, 10:05

IFRS 16 Advance Payment

Post by Muzaffar »

Dear Forum Members,

Can anyone guide on the working of IFRS 16 if lease period is for 3 years and total lease payment for the entire period is made in advance at start of lease?
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Marek Muc
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Re: IFRS 16 Advance Payment

Post by Marek Muc »

you simply won't have any lease liability for the amounts paid, they will be included in the right of use asset

https://ifrscommunity.com/knowledge-bas ... ement-date
Muzaffar
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Joined: 31 May 2021, 10:05

Re: IFRS 16 Advance Payment

Post by Muzaffar »

So you mean that the Right of use asset will be depreciated straight line which will be the only expense and there will be no finance cost expense as there is no lease liability hence there is no discount and no finance cost will be there? Would you be kind enough to share an excel working like others on this as well?
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Marek Muc
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Re: IFRS 16 Advance Payment

Post by Marek Muc »

yep, there will be no discounting expense since there is no lease liability
this is of course assuming that the lease term is the same as the prepaid period:
https://ifrscommunity.com/knowledge-bas ... ease-term/

you can find lease examples with excel working files on this page:
https://ifrscommunity.com/knowledge-bas ... of-leases/
Muzaffar
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Joined: 31 May 2021, 10:05

Re: IFRS 16 Advance Payment

Post by Muzaffar »

Thank you Marek for clarification. In my case the lease term is agreed is 3 years which can be extended to 1 additional year. The initial payment is made for first 3 years and hence there will be no finance cost in 1st three years, however it will appear in 4th year.
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Marek Muc
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Re: IFRS 16 Advance Payment

Post by Marek Muc »

do you include this 1 optional year in the lease term under IFRS 16?
Muzaffar
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Re: IFRS 16 Advance Payment

Post by Muzaffar »

Yes, as we have option to extend the contract, should it not be included?
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Marek Muc
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Re: IFRS 16 Advance Payment

Post by Marek Muc »

it depends on your assessment:

https://ifrscommunity.com/knowledge-bas ... te-a-lease

if you include this 1 optional year in lease term, then you have to recognise it as a lease liability (which means you will recognise unwinding of discount and finance costs)
Muzaffar
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Joined: 31 May 2021, 10:05

Re: IFRS 16 Advance Payment

Post by Muzaffar »

I understand that its based on assessment of lessee.

Thank you for detailed insight
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