IFRS 16 establishes principles for recognising, measuring, presenting, and disclosing leases. It applies to all leases except for those specified in paragraph IFRS 16.3. There are specific exemptions for short-term leases and low-value asset leases. The accounting principles set out by IFRS 16 differ considerably for lessees (customers) and lessors (providers).
Leases of intangible assets
Rights for intangible assets such as films, recordings, plays, patents, and copyrights are not covered by IFRS 16, as indicated in IFRS 16.3(e). Such rights are governed by IAS 38. However, for other intangible assets, lessees can opt to apply either IAS 38 or IFRS 16 (IFRS 16.4).
Short-term leases
Lessees have the choice not to apply the recognition requirements of IFRS 16 for short-term leases.
Low-value assets
IFRS 16.5(b) allows lessees to bypass its recognition requirements for leases where the underlying asset has a low value. This value is determined based on the cost of a new item, regardless of the leased asset’s age. Cars, for instance, are not deemed low-value assets. On the other hand, items like tablets, computers, small office furniture, and phones are considered low-value assets (IFRS 16.B8). A general benchmark for low value, though not an official threshold, is an asset with a new value around US$5,000 or less (IFRS 16.BC100). Assessments on asset value should remain consistent across entities of different sizes. Furthermore, an asset is deemed of low value if it isn’t highly dependent on, or highly interrelated with, other assets (IFRS 16.B4-B5).
When applying this exemption, lease payments are recognised as an expense systematically over the lease term (IFRS 16.6). Lessees can decide on a lease-by-lease basis if an asset is of low value (IFRS 16.8). However, if an asset is subleased or intended for subleasing, the head lease does not qualify for the low-value exemption (IFRS 16.B7).
--Are you tired of the constant stream of IFRS updates? I know it's tough! That's why I created Reporting Period – a once-a-month summary for professional accountants. It consolidates all essential IFRS developments and Big 4 insights into one readable email. I personally curate every issue to ensure it's packed with the most relevant information, delivered straight to your inbox. It's free, with no spam, and you can unsubscribe with just one click. Ready to give it a try?
Portfolio application
For entities with a range of similar leases, IFRS 16.B1 provides a portfolio approach as a practical expedient. An entity can use this if the impact on the financial statements from applying IFRS 16 to the whole portfolio is expected to be roughly the same as applying it to each individual lease. Leases can be grouped based on asset type or the time period of lease initiation. Refer also to Example 11 accompanying IFRS 16.
Combination of contracts
At times, entities might sign multiple contracts that essentially form one larger agreement. In such cases, contracts signed around the same time with the same party (or its related parties) should be combined for accounting purposes if they meet the criteria in IFRS 16.B2.
For example, four sequential one-year leases for similar assets should be accounted for as a single four-year lease, as highlighted in IFRS 16.BC130.
More about IFRS 16
See other pages relating to IFRS 16: