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IASB publishes proposed amendment to IFRS 16

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Nov 27, 2020

On November 27, 2020, the International Accounting Standards Board (IASB) published an exposure draft "Lease Liability in a Sale and Leaseback (Proposed amendment to IFRS 16)" that aims at clarifying how a seller-lessee should apply the subsequent measurement requirements in IFRS 16 to the lease liability that arises in a sale and leaseback transaction. Comments are requested by March 29, 2021.

 

Background

The IFRS Interpretations Committee received a submission about IFRS 16 Leases and a sale and leaseback transaction with variable payments that do not depend on an index or rate and came to the conclusion (and the IASB agreed) that it would be beneficial to amend IFRS 16 to specify how a seller-lessee should apply the subsequent measurement requirements in IFRS 16 to the lease liability that arises in the sale and leaseback transaction.

The IASB has now published an exposure draft (ED) of a proposed clarifying amendment.

 

Suggested changes

The IASB proposes in ED/2020/4 Lease Liability in a Sale and Leaseback (Proposed amendment to IFRS 16) to improve the sale and leaseback requirements in IFRS 16 by specifying how to apply paragraphs 36–38 of IFRS 16 in subsequently measuring the lease liability that arises in a sale and leaseback transaction. Specifically, the ED proposes that a seller-lessee

  • when applying the IFRS 16 requirements for measuring the right-of-use asset and lease liability arising from the leaseback, determines the proportion of the asset sold that relates to the right of use retained by comparing the discounted present value of the expected payments for the lease to the fair value of the asset sold and
  • subsequently measures the lease liability by reducing the carrying amount to reflect the expected payments for the lease.

A seller-lessee would apply the proposed amendment retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, except when such application to sale and leaseback transactions with variable lease payments would be possible only with the use of hindsight.

The amendment would also add two illustrative examples to IFRS 16

Comments on the proposed changes are requested by March 29, 2021.

 

Effective date

The exposure draft does not contain a proposed effective date as the IASB intends to decide on this after exposure. Early application would be permitted.

 

Additional information

 

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