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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.

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?

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».

I also thought about it, but didn't like this solution because identical payments are treated differently depending on the timing

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.

Makes sense!