have been recognised as a reversal of previous write-downs.
Some entities adopt a format for profit or loss that results in amounts other than the cost
of inventories being disclosed as an expense during the period. This will happen if an
entity presents an analysis of expenses using a classification based on the nature of
expenses. The entity then discloses the costs recognised as an expense for raw materials
and consumables, labour costs and other costs together with the amount of the net
change in inventories for the period. [IAS 2.39].
Formats for the presentation of profit or loss are discussed in Chapter 3.
The requirement to disclose the amount of any write-down of inventories recognised
as an expense in the period in (e) above only relates to write-downs of inventory held
at the end of the reporting period. The notion of ‘write-down’ is used in the context of
the lower of cost and net realisable value test. An entity only performs this test at a
reporting date.
References
1
IFRIC Update, July 2015.
1600 Chapter 22
1601
Chapter 23
Leases
(IAS
17)
1 INTRODUCTION .......................................................................................... 1605
2 WHAT IS A LEASE? ...................................................................................... 1605
2.1
Determining whether an arrangement contains a lease ............................ 1606
2.1.1
Identification of an asset ................................................................... 1607
2.1.2
Parts of assets and the unit of account .......................................... 1608
2.1.3
The arrangement conveys a right to use the item ...................... 1609
2.1.4
Fixed or current market prices and control of the asset ............ 1612
2.1.5
When to assess the arrangements ................................................... 1613
2.1.6
Separation of leases from other payments within the
arrangement ......................................................................................... 1613
2.1.7 Disclosure
requirements
...................................................................
1615
2.2
Transactions that involve the legal form of a lease but are not, in
substance, leases ................................................................................................. 1615
2.2.1
The arrangement ................................................................................ 1616
2.2.2
Accounting for assets and liabilities arising under the
arrangement .......................................................................................... 1617
2.2.3 Fee
income
..........................................................................................
1618
2.2.4
Presentation and disclosure requirements. ................................... 1618
3 SCOPE AND DEFINITIONS OF IAS 17 .......................................................... 1619
3.1
Scope of IAS 17 .................................................................................................... 1619
3.1.1
Leases and licensing agreements ..................................................... 1619
3.1.2
Arrangements over intangible assets ............................................. 1620
3.2
Lease classification ............................................................................................. 1621
3.2.1
Finance and operating leases ........................................................... 1621
3.2.2
Determining the substance of transactions ................................... 1621
3.2.2.A
Residual value guarantees by the lessee ................... 1624
3.2.2.B Rental
rebates
.................................................................
1625
3.2.3
Changes to lease terms and provisions .......................................... 1626
3.3
Leases of land – finance or operating leases? ............................................... 1628
1602 Chapter 23
3.3.1
Measurement and presentation of operating leases over
land ........................................................................................................ 1629
3.3.2 Separating
land and buildings .......................................................... 1630
3.3.3 Leases
and
investment properties ................................................... 1632
3.4
Defined terms ...................................................................................................... 1633
3.4.1
Inception and commencement of the lease .................................. 1633
3.4.2 Fair
value
..............................................................................................
1634
3.4.3
Minimum lease payments ................................................................. 1634
3.4.4
Lease term and non-cancellable period ........................................ 1634
3.4.5
Interest rate implicit in the lease and incremental
borrowing rate ..................................................................................... 1635
3.4.6 Residual
value ..................................................................................... 1635
3.4.6.A
Residual value guarantors ............................................ 1636
3.4.7
Contingent rents and embedded derivatives ................................ 1636
3.4.7.A
Contingent rents and operating leases ...................... 1637
3.4.8
Initial direct costs ............................................................................... 1638
3.4.9
Calculation of the implicit interest rate and present value
of minimum lease payments ............................................................. 1638
3.5
Leases as financial instruments ........................................................................ 1639
4 ACCOUNTING FOR FINANCE LEASES ........................................................ 1640
4.1
Accounting by lessees ........................................................................................ 1641
4.1.1
Initial recognition ............................................................................... 1641
4.1.2
Allocation of finance costs ................................................................ 1641
4.1.3 Recording
the
liability ....................................................................... 1643
4.1.4 Accounting
for
the leased asset ....................................................... 1643
4.2
Accounting by lessors ........................................................................................ 1644
4.2.1
The lessor’s net investment in the lease ........................................ 1645
4.2.2
Allocation of finance income ........................................................... 1645
4.2.3 Residual
values .................................................................................... 1646
4.2.3.A
Unguaranteed residual values ...................................... 1646
4.2.4
Disposals by lessors of assets held under finance leases –
measurement ....................................................................................... 1647
4.3
Termination of finance leases .......................................................................... 1647
4.3.1
Termination of finance leases by lessees ...................................... 1648
4.3.1.A
Early termination by lessees ........................................ 1648
4.3.2
Termination and impairment of finance leases by lessors ......... 1649
4.3.2.A
Impairment of lease receivables ................................. 1649
4.3.2.B
Early termination of finance leases for lessors ........ 1650
4.4
Manufacturer or dealer lessors ........................................................................ 1651
5 ACCOUNTING FOR OPERATING LEASES .................................................... 1653
Leases (IAS 17) 1603
5.1
Operating leases in the financial statements of lessees ............................... 1653
5.1.1
Leases that include payments for services .................................... 1653
5.1.2
Straight-line recognition over the lease term ............................... 1654
5.1.3
Notional or actual interest paid to lessors ..................................... 1654
5.1.4
Lease incentives – accounting by lessees ..................................... 1655
5.1.5 Onerous
contracts
..............................................................................
1657
5.2
Operating leases in the financial statements of lessors ............................... 1658
5.2.1
Accounting for assets subject to operating leases ........................ 1658
5.2.2
Lease incentives – accounting by lessors ...................................... 1659
5.3
Payments made in connection with the termination of operating
leases ..................................................................................................................... 1659
5.3.1
Compensation for loss of profits ..................................................... 1662
6 MODIFYING THE TERMS OF LEASES ......................................................... 1662
6.1
IAS 17 and accounting for renegotiations ...................................................... 1662
6.1.1
Determining whether there is a different classification ............. 1663
6.1.2 Accounting
for
reclassified leases ................................................... 1666
6.1.3
Accounting for modifications to finance leases ........................... 1667
6.1.4 Tax
and
interest variation clauses ................................................... 1668
6.1.5
Accounting for changes to the terms of operating leases ........... 1669
7 SALE AND LEASEBACK TRANSACTIONS .................................................... 1669
7.1
Sale and finance leaseback ............................................................................... 1670
7.2 Operating
leaseback
............................................................................................
1671
7.3
Sale and leaseback arrangements including repurchase agreements
and options ........................................................................................................... 1673
8 SUB-LEASES AND BACK-TO-BACK LEASES ................................................ 1675
8.1
Introduction ......................................................................................................... 1675
8.1.1
The original lessor and the ultimate lessee ................................... 1675
8.1.2 The
intermediate
party
.....................................................................
1675
9 DISCLOSURES REQUIRED BY IAS 17 ........................................................... 1677
9.1
Disclosures relating to financial assets and liabilities .................................. 1677
9.2
Disclosure by lessees .......................................................................................... 1678
9.2.1
Disclosure of finance leases ............................................................. 1678
9.2.2
Disclosure of operating leases .......................................................... 1679
9.3
Disclosure by lessors .......................................................................................... 1681
9.3.1
Disclosure of finance leases ............................................................. 1681
9.3.2 Disclosure
of operating leases .......................................................... 1682
1604 Chapter 23
List of Examples
Example 23.1:
Arrangements that contain a lease .................................................. 1610
Example 23.2:
Arrangements that do not contain leases ........................................ 1611
Example 23.3:
Fixed prices per unit .......................................................................... 1612
Example 23.4:
Substance of an arrangement ........................................................... 1616
Example 23.5:
A lease structured such that the most likely outcome is
that the lessee has no significant residual risk .............................. 1624
Example 23.6:
Rental rebates ...................................................................................... 1625
Example 23.7:
Lease classification ............................................................................. 1628
Example 23.8:
Leases of land and buildings ............................................................. 1631
Example 23.9:
Calculation of the implicit interest rate and present value
of minimum lease payments ............................................................. 1638
Example 23.10:
Allocation of finance costs ................................................................ 1641
Example 23.11:
Sum-of-digits allocation as compared to implicit interest
rate ......................................................................................................... 1642
Example 23.12:
Lessee’s liabilities and interest expense ......................................... 1643
Example 23.13:
Lessee’s depreciation and interest expense ...................
............... 1644
Example 23.14:
The lessor’s gross and net investment in the lease ...................... 1645
Example 23.15:
Reduction in residual value .............................................................. 1646
Example 23.16:
Early termination of finance leases by lessees ............................. 1649
Example 23.17:
Manufacturer or dealer lessors ........................................................ 1652
Example 23.18:
Operating lease expenses with fixed annual increment ............. 1654
Example 23.19:
Operating lease expenses reflecting interest payments to
the lessor .............................................................................................. 1655
Example 23.20:
Accounting for lease incentives under SIC-15 .............................. 1656
Example 23.21:
An onerous contract ........................................................................... 1658
Example 23.22:
Payments made in connection with terminating an
operating lease ................................................................................... 1660
Example 23.23:
Modifying the terms of leases .......................................................... 1664
Example 23.24:
Accounting for lease modifications ................................................ 1667
Example 23.25:
Sale and finance leaseback – accounting for the excess
sale proceeds ....................................................................................... 1670
Example 23.26:
Sale and leaseback transaction involving escalating rentals
and call options ................................................................................... 1674
1605
Chapter 23
Leases (IAS 17)
1 INTRODUCTION
Although a lease is an agreement that gives a lessee the right to use an asset for an agreed
period of time in return for a payment or series of payments, companies are required in
certain circumstances to capitalise assets in their statements of financial position,
together with the corresponding obligations, irrespective of the fact that legal title to
those assets is vested in another party.
The term ‘lease’ also applies to arrangements that do not take the legal form of leases.
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 316