Leases and IFRS16

[Snoopy]

I can't recall a change in accounting rules that has caused more disruption to financial statements than IFRS16. The principle behind IFRS16 is to bring leased assets onto the company balance sheet. A lease becomes a 'right to use asset' on one side of the balance sheet offset by a 'lease payable liability' on the other. The 'right to use asset' is then amortised each year as annual lease payments are made, with a consummate reduction in 'lease payment liability'. In practice things are not quite as simple as this :-(.

The 'right to use asset' and the 'lease payment liability' are nominally of equal value, but they do not appear that way when listed on the company balance sheet. Each lease payable is measured as the 'present value' of all future lease payments, discounted back to the present at the incremental borrowing rate of the company. Lease costs are then recognised through 'lease interest expense' over the life of the lease.

SNOOPY