EXEMPTIONS AND PRACTICAL EXPEDIENTS UNDER IFRS 16

1. Exemption from application of IFRS 16

Subject of exemption

Pursuant to [IFRS 16.6] a lessee may elect not to apply IFRS 16 lease model for following assets:

(i) Short-term leases: lease term is less than 12 months from commencement date.

(ii) Underlying assets of the lease is low value: value, when new, is USD 5,000 or less. [Basis for Conclusion BC100]

Note: a lease that contains a purchase option is not a short-term lease.

Accounting for exempted cases under [IFRS 16.6]

For lease under scopes of IFRS 16.6, the lessee shall recognize lease payments as expense in the profits/losses statements as it incurs, on straight line basis.

Extent of exemption application

Evaluation to apply exemption term for short-term lease can be made on a class of assets while applying exemption for low-value asset must be made on lease-by-lease basis. [IFRS 16.8].

2. Separating lease components from non-lease components [IFRS 16.15]

IFRS 16 requires that lessee must separately account for lease component from non-lease component. In which lease component is under scope of IFRS 16 while non-lease component will be straightly forward recorded in profit/loss statements as it incurs.

However, there is a practical expedient that allows the lessee not to separate between lease and non-lease components of a contract. Lease component and associated non-lease component can be accounted as a single lease.

The practical experience in [IFRS 16.15] must be consistently applied for a class of underlying asset. The lessee could not intentionally select to apply differently for those assets which are same in nature.

3. Expedient in applying definition of a lease

[IFRS 16.11] said that the company shall reassess whether a contract is, or contains, a lease only if terms and conditions of the contract is revised. If not, the company could not re-evaluate the contract to apply IFRS 16 in the middle of contract term.

IFRS 16 provide details on this practical expedient as following:

It can be interpreted that:

- For contract that was previously defined as a lease (operating lease and finance leases) under IAS 17 will be accounted for as a lease under IFRS 16. When applying IFRS 16, a single lease model will be applied for all lease contracts, including operating leases.

- Not to apply IFRS 16 to contracts that was not defined as a lease under IAS 17.

Therefore, IFRS 16 is applied for a lease contract only if it is entered into or changed on or after the initial application date of IFRS 16 (01 January 2019 or actual lease commencement date which is earlier).

4. Applying IFRS 16 for leases previously classified as operating leases

A lessee may elect not to apply IFRS 16 for a lease contract by which lease term ends within 12 months from the date of initial application. In such case, lease payment will be recorded as expenses in the incurring period straightly. [IFRS 16.C10].

5. Options for retrospective adjustments on leases which was previously recorded as operating lease under IAS 17

When applying IFRS 16 to lease contracts, the lessee can choose to retrospectively apply as either of followings:

- Option 1: retrospectively apply to each prior reporting period in accordance with IAS 8 – Accounting policies, changes in accounting estimates and Errors.

- Option 2: retrospectively apply to current period by recognizing cumulative impact of initially applying IFRS 16 to opening balance of current period and do not restate comparative figures.

Carrying value of lease liabilities under Option 2

Carrying amount of lease liabilities as of initial application date is present value of remaining lease payments, discounted using the lessee’s incremental borrowing rate at the date of initial application.

Carrying value of right-of-use asset (ROU) under Option 2

The lessee can choose, on a lease-by-lease basis, to measure ROU asset by either of following methods:

- Its carrying amount as if IFRS 16 had been applied since the commencement date, but discounted using the lessee’s incremental borrowing rate at the date of initial application.

- An amount equal to lease liabilities, adjusted by the amount of any prepaid or accrued lease payments recognized in the statement of financial position immediately before the date of initial application.

References

- IFRS 16 Leases

- Basis for Conclusion of IFRS 16