Point of view — Property occupiers implications of the new leasing standard
Published on:
14 Jan, 2016
IFRS 16 Leases has been published and is effective for periods beginning on or after 1 January 2019 (subject to EU endorsement). This publication highlights issues from the new leasing standard that will be of interest to property occupiers.
- Most property leases will come on-balance sheet for lessees, prompting recognition of a right-of-use asset and a liability for the lease component, but not the maintenance or other service component of payments.
- Straight line operating lease expenses will be replaced with depreciation and front-loaded interest.
- There is no requirement to estimate variable payments. Those varying with an index or rate are initially measured at the rate on the date of commencement, and are subsequently remeasured.
- For sale and leaseback transactions only the gain on the portion of asset not leased back is recognised immediately.
- Capturing all the necessary data for implementation could be a sizeable task. Two particular practical challenges will be determining appropriate discount rates and remeasuring the asset and liability when payments change.