Prepayments-cash flow (IFRS 16)

All topics related to IFRS Standards.
Post Reply
Natalia
Posts: 2
Joined: 04 Jun 2021, 16:03

Prepayments-cash flow (IFRS 16)

Post by Natalia »

Hello, Forum Members.

Where do prepayments go on cash flow under IFRS 16?
There is no lease liability, advance payments include only in right-of-use asset.
So it is not within financing activities under IFRS 16:50(а).

Thank you.
User avatar
Marek Muc
Site Admin
Posts: 3227
Joined: 15 Oct 2018, 17:21
Contact:

Re: Prepayments-cash flow (IFRS 16)

Post by Marek Muc »

hm, I'm tempted to show it within financing activities provided that such a prepayment decreases lease liability to be recognised at the commencement of the lease. What are your thoughts?
Natalia
Posts: 2
Joined: 04 Jun 2021, 16:03

Re: Prepayments-cash flow (IFRS 16)

Post by Natalia »

Thank you for answer.
I’ve just found FAQ PwC. They say, that «payments made before the commencement of a lease are classified as investing cash flows, as these are cash payments for the acquisition of the right-of-use asset».
User avatar
Marek Muc
Site Admin
Posts: 3227
Joined: 15 Oct 2018, 17:21
Contact:

Re: Prepayments-cash flow (IFRS 16)

Post by Marek Muc »

I also thought about it, but didn't like this solution because identical payments are treated differently depending on the timing
pub_acco
Trusted Expert
Posts: 328
Joined: 19 Mar 2020, 16:40

Re: Prepayments-cash flow (IFRS 16)

Post by pub_acco »

In practice I classify prepayments and initial direct costs as investing by organizing my cash flow worksheet like the following:

Additions of PP&E
Additions of ROU
Less: recognition of lease liabilities
Less: recognition of dismantling obligations
Changes in capex payable
-----
Total capital expenditures

I like this approach because this model provides a consistent framework for all the capital assets and reflects my personal view that addition of a ROU is just a mode of capital investments whose consideration happens to be non-cash.
User avatar
Marek Muc
Site Admin
Posts: 3227
Joined: 15 Oct 2018, 17:21
Contact:

Re: Prepayments-cash flow (IFRS 16)

Post by Marek Muc »

Makes sense!
Post Reply