LEASES-IFRS 16 LECTURE SLIDES PREPARED BY MR MUSONDA FACULTY OF BUSINESS ZAMBIA CATHOLIC UNIVERSITY 2018
Lease financing • Lease financing is one of the important sources of medium- and long- term financing where the owner of an asset gives another person, the right to use that asset against periodical payments. The owner of the asset is known as lessor and the user is called lessee. • The periodical payment made by the lessee to the lessor is known as lease rental. Under lease financing, lessee is given the right to use the asset but the ownership lies with the lessor and at the end of the lease contract, the asset is returned to the lessor or an option is given to the lessee either to purchase the asset or to renew the lease agreement.
IDENTIFYING A LEASE A lease is the contract between the lessor and the lessee which conveys the right to control the use of the identified asset from lessor to lessee for a period of time for a consideration. The right to control use of the asset depends on the lessee having; The right to obtain substantially all the economic benefits from the use of the identified asset The right to direct the use of the asset without influence from the lessor
IDENTIFYING A LEASE cont Lease payments These are fixed or variable payments made by lessee to lessor for the right to control and use of the asset. Implicit interest rate in the lease This is the interest rate/discount factor negotiated for a lease. It causes the aggregate present value of lease payments and residual value to equal the fair value of the underlying asset and any initial direct costs.
IDENTIFYING A LEASE cont Lease period This is an agreed period in which the lessee has the right to use and control of the underlying asset. During this period, the lessee makes lease rental payments for the use of the asset. Short term lease This is a lease with lease period not exceeding 12 months
IDENTIFYING A LEASE cont Low value leases These are leases where the underlying asset has low value when new eg personal computer, phones, office furniture ect. The asset qualifies for low value when the following conditions are met; The lessee can benefit from use of asset The asset is not highly depended on or highly interrelated with other assets .
Initial measurement of a leased asset A lease is initially measured at cost comprising; i. Amount of initial lease liability ii. Any lease payments made before commencement date less incentives received iii. Any initial direct costs incurred by lessee iv. Decommissioning/restoration cost to be incurred by lessee
Measurement cont Subsequent measurement of the leased asset The asset is measured using the cost model or fair value model as per IAS 16. If a lease transfers ownership of the asset or gives purchase option at the end of lease term, the underlying asset should be depreciated over its useful life otherwise the underlying asset should be depreciated from commencement to earlier of useful life and lease term Measurement of lease liability
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- Summer '18
- eliot mumba
- Leasing, Finance lease