Hi IFRS Community
I have a query regarding how we would adjust for rent accruals and prepayments existing at ye 31 dec 2018 under modified retrospective approach on transition whereby we set the lease liability = right of use asset. I am getting unnecessarily confused - would the journal entries on 1 jan 2019 be:
Dr accrual
Cr right of use asset
Dr right of use asset
Cr prepayment
Thanks
Apollon
IFRS 16 - Modified Retropsective Approach
Re: IFRS 16 - Modified Retropsective Approach
Hi,
By accrual you mean a liability relating to operating lease periods before the transition date right? If so, you do nothing, as it relates to periods prior to IFRS 16 adoption. You just pay it when it's due, so the entry will look like this:
CR cash
DR accrued liability
If you prepaid for periods after 1/1/2019, then this prepayment is impacted by IFRS 16. And yes , it increases the RoU assuming that this payment was not included in lease liability at 1/1/2019
By accrual you mean a liability relating to operating lease periods before the transition date right? If so, you do nothing, as it relates to periods prior to IFRS 16 adoption. You just pay it when it's due, so the entry will look like this:
CR cash
DR accrued liability
If you prepaid for periods after 1/1/2019, then this prepayment is impacted by IFRS 16. And yes , it increases the RoU assuming that this payment was not included in lease liability at 1/1/2019
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Apollon113
- Posts: 3
- Joined: 14 Sep 2019, 18:55
Re: IFRS 16 - Modified Retropsective Approach
Thank you Marek for your reply.
Yes I meant rent free accruals which have been built up and there is a balance left at year end 31 Dec 2018.
The company below for instance has offset rent free accruals against its RoU asset in its interim financial statements :
See pg 39: bullet point d:
d. Reclassification of balance sheet items: As noted above in a, the right-of-use asset is initially measured at cost plus lease payments made at or before the adoption date (prepayments), less any lease incentives received (rent free accruals) and less onerous provisions existing at the adoption date. These balances have been reclassified to right-of-use asset on adoption.
Source: https://www.capita.com/media/3879/hy-results-2019.pdf
Yes I meant rent free accruals which have been built up and there is a balance left at year end 31 Dec 2018.
The company below for instance has offset rent free accruals against its RoU asset in its interim financial statements :
See pg 39: bullet point d:
d. Reclassification of balance sheet items: As noted above in a, the right-of-use asset is initially measured at cost plus lease payments made at or before the adoption date (prepayments), less any lease incentives received (rent free accruals) and less onerous provisions existing at the adoption date. These balances have been reclassified to right-of-use asset on adoption.
Source: https://www.capita.com/media/3879/hy-results-2019.pdf
Re: IFRS 16 - Modified Retropsective Approach
I guess it's just a matter of starting at the same point. Let's say that the rent free period expense and accrual recognised before 1/1/2019 amounts to 100, and the payments after 1/1/2019 amount to 500.
Then at 1/1/2019 you have a total liability of 600, but the RoU amounts to 500 only, as the 100 was already recognised as an expense under IAS 17.
So at 1/1/2019 opening balance you've got:
CR 100 liability
DR 100 retained earnings (expense recognised under IAS 17)
IFRS 16 impact is as follows:
CR 500 liability
DR 500 RoU
So in total you've got a liability of 600, but RoU amounts to 500 only, as 100 was already recognised in P/L before 1/1/2019
agreed?
Then at 1/1/2019 you have a total liability of 600, but the RoU amounts to 500 only, as the 100 was already recognised as an expense under IAS 17.
So at 1/1/2019 opening balance you've got:
CR 100 liability
DR 100 retained earnings (expense recognised under IAS 17)
IFRS 16 impact is as follows:
CR 500 liability
DR 500 RoU
So in total you've got a liability of 600, but RoU amounts to 500 only, as 100 was already recognised in P/L before 1/1/2019
agreed?
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Apollon113
- Posts: 3
- Joined: 14 Sep 2019, 18:55
Re: IFRS 16 - Modified Retropsective Approach
Agreed! Makes sense now
Much appreciated
Much appreciated