IFRS16 - Sublease

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Xandrea
Posts: 6
Joined: 05 Jul 2021, 08:45

IFRS16 - Sublease

Post by Xandrea »

Hi All

I have a question in determining whether the sublease is to be treated as finance or operating lease.

My company owned a property (a commercial office, say office A), the property is classified as investment property in my balance sheet as I earn rental income from my tenant. At the same time, my company is also acting as an intermediate lessor where I leased from Company B an office for 3 years, (say office B) and sublease this office to my tenant for 3 years as he needed a bigger space. I only have one master agreement with this tenant for office A & B, the agreement is for a period of 3 years.

How should I account this head lease? At first I thought this should be accounted for as finance lease given that the useful life of office B from headlease and sublease are the same. However, I wouldn't be able to determine the net investment of this office B since there is only one master agreement entered with this tenant along with the office that I owned, unless I based on the rental income per sf to calculate them. Or should this be accounted as operating lease and recognized the headlease as ROU of investment property?

Appreciate you advise.

Thanks.
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Marek Muc
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Location: Warsaw, Poland

Re: IFRS16 - Sublease

Post by Marek Muc »

you are a lessee when it comes to the head lease, not a lessor, so the distinction between operating lease and finance lease does not apply to the head lease, hm?

https://ifrscommunity.com/knowledge-bas ... -subleases
Xandrea
Posts: 6
Joined: 05 Jul 2021, 08:45

Re: IFRS16 - Sublease

Post by Xandrea »

Hello, yes, I am lessor when come to head lease but at the same time I am also acting as intermediate lessor. In this case, should i account the sub lease as finance lease given that the right of use of the asset from my head lease has the same term?
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Marek Muc
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Joined: 15 Oct 2018, 17:21
Location: Warsaw, Poland

Re: IFRS16 - Sublease

Post by Marek Muc »

in the original post, you asked about accounting for the head lease :)

the sublease will be a finance lease under IFRS 16.63(c)
Xandrea
Posts: 6
Joined: 05 Jul 2021, 08:45

Re: IFRS16 - Sublease

Post by Xandrea »

:) thanks
hubertd
Posts: 26
Joined: 21 Jul 2020, 23:48

Re: IFRS16 - Sublease

Post by hubertd »

You'll have lease receivable (net investment) for a sublease and no RoU for head lease. If you've already recognised RoU you need to de-recognise it and recognise lease receivable instead.
Xandrea
Posts: 6
Joined: 05 Jul 2021, 08:45

Re: IFRS16 - Sublease

Post by Xandrea »

thanks!
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