Part+6+Chapter+1+Leases+(IFRS+16).docx - Part 6 Chapter 1 Leases(IFRS 16 IFRS 16 LEASES BACKGROUND IFRS 16 Leases was published on 13 January 2016 and

Part+6+Chapter+1+Leases+(IFRS+16).docx - Part 6 Chapter 1...

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Part 6: Chapter 1 – Leases (IFRS 16)IFRS 16 - LEASESBACKGROUNDIFRS 16 – Leaseswas published on 13 January 2016 and will be applicable as of 1 January 2019. The standards sets out the principles for the recognition, measurement, presentation and disclosure of leases in order to provide relevant information.IDENTIFYINGALEASEAt inception of a contract, an entity shall assess whether the contract is, or contains, a lease in order to determine whether IFRS 16 – Leasesis applicable.A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange of consideration.For a contract to be or to contain a lease the customer has both of the following:a.Right to obtain substantially all the economic benefits from the use to the identified asset; andb.Right to direct the use of the identified asset.IDENTIFIEDASSETAn asset can be explicitly specified in a contract or implicitly specified at the time that the asset is made available for use by the customer. Even if an asset is specified explicitly, a lessee does not have the right to use an identified asset if the lessor has the substantive right to substitute the assetthroughout the period of use. A lessor’s right to substitute an asset is substantive only ifa)The lessor has the practical ability to substitute alternative assets throughout the period of use; andb)The lessor would benefit economically from the exercise of its right to substitute the asset.If the supplier has a right or an obligation to substitute the asset only on or after either a particular date or the occurrence of a specified event, the supplier’s substitution right is not substantive because the supplier does not have the practical ability to substitute alternative assets throughout the full period of use.The evaluation of whether a supplier’s substitution right is substantive is based on facts and circumstances at inception of the contract and shall exclude consideration of future events that, at inception of the contract, are not considered likely to occur.The lessor’s right or obligation to substitute the asset for repairs and maintenance, if the asset is not operating properly or if a technical upgrade becomes available does not preclude the lessee from having the right to use an identified asset.A capacity portion of an asset is an identified asset if it is physically distinct (for example, a floor of a building). A capacity or other portion of an asset that is not physically distinct (for example, a capacity portion of a fibre optic cable) is not an identified asset, unless it represents substantially all of the capacity of the asset and thereby provides the customer with the right to obtain substantially all of the economic benefits from the use of the asset.
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