office floor in a building taken on rent (IFRS 16)

[Qasim]

background information -

We are the tenant , and we lease out cubicle offices on the office floor to our small busniess clients,
Between 1 june 2022 and 1 december 2022 - there is a period of 6 months which is the grace period (rent free) . The first rental payment was on 1 december 2022.
During these 6 months we had made leasehold improvements of 200,000 dollars(these are non removable) and about 100,000 dollars are the furniture and fittings (only some portion of these are removable ).

so the office floor was also available for use on 1 December as well.

This was done with the permission of the landlord as agree per the contract. As you can see we have made significant investment in the office floor of 300,000 dollars.(we Intend to use this office floor for the full lease term of 10 years)

The lease term is for 10 years from 1 june 2022 to 1 june 2032. the annual rental payments 100,000 US dollars yearly (paid monthly) , but the rent commencement date was 1 December 2022

Either party the tenant and the landlord can terminate the lease by giving 6 months notice period

questions

Q1 - is it mandatory to account for the lease ? as the non cancellable period is only 6 month ? but our lease term is for 10 years and do consider our significant investments

Q2 - If we do account for the lease liability and Rou , what should be the starting date?
from 1 decmeber 2022 ? or 1 JUNE 2022 ? (Until 1 may 2032)

we have accounted in our books the lease term from 1 decmeber 2022 until 1 june 2032 ? is this correct ?

I do know that ifrs 16 talks about the greater economic phenomenon when talking about deciding the lease term, we have considered until 1 june 2032 as per our longterm significant investment and the complete lease term which can also be renewable after the 10 years period.

[Marek Muc]

1. Yes, it appears so. Refer to https://ifrscommunity.com/knowledge-bas ... ease-term/
2. 1 June 2022: https://ifrscommunity.com/knowledge-bas ... ement-date

[Qasim]

Hi, the first link says the requested page could not be found

and another question, so we will recognise ROU and lease liability at 1 June 2022 , I do understand the subsequent calculation for lease liability

but for Rou, do we have to start amortisation at 1 June itself ? or can we start amortisation of Rou on 1 December 2022 ?

this 6 month phase, the company had no revenue generating operations at all , this 6 months was utilised for leasehold improvments which we were doing on the floor

[Marek Muc]

Sorry, fixed the link.
Depreciation starts from 1 June