About IFRS 16.69 Initial Direct Cost Lessor Accounting for Finance Lease

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hkg scheduler
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Joined: 22 May 2022, 16:13

About IFRS 16.69 Initial Direct Cost Lessor Accounting for Finance Lease

Post by hkg scheduler »

Dear SIr/Madam,

I would like to consult about the meaning and application in IFRS 16.69:
"Initial direct costs, other than those incurred by manufacturer or dealer lessors, are included in the initial measurement of the net investment in the lease and reduce the amount of income recognised over the lease term."

I read that on IFRS Community notes suggest that such Initial Indirect Costs should be "Capitalised" & included in the initial measurement of the "Net Investment" & Reduce the amount of lease income recognised over the lease term.

Therefore, I should NOT Expense such costs but Capitalise them as "Net Investment" (asset) (by adding such costs into the calculation of Net Investment, right?
If so, such costs will be "amortised" over the lease term when the lessee pays?

Thanks very much for your answer! Really appreciate it!

Alvin
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Marek Muc
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Re: About IFRS 16.69 Initial Direct Cost Lessor Accounting for Finance Lease

Post by Marek Muc »

I would say that these costs will be repaid by the lessee. So these costs will decrease your interest income during the lease as more payments will be allocated to repayment of the initial investment in the lease
Leo
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Joined: 05 Apr 2020, 22:31

Re: About IFRS 16.69 Initial Direct Cost Lessor Accounting for Finance Lease

Post by Leo »

I think, it will be reflected in the implicit rate of interest in your lease asset (lease receivables), which will be increased for the amount equal to the initial direct costs incurred. This will be reduced by little and little over the lease terms, which will result in a lower interest income.
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