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9- Lease - Coggle Diagram

- - - - The right to obtain substantially all the economic benefits
      - The right to direct the use of the asset
  - - - The customer still does not have the right to use the asset if the supplier has the substantive right to substitute the asset throughout the period of use
- - - - Requires majority of assets and associated obligations to be recognised in the FS
      - Benefit
        
        Allow transparency and comparability
      - Impact on ratios
        
        Gearing, because the debt has increased
        
        Asset turnover, because assets have increased
        
        Profit margin ratio
        
        Rent expenses are removed to be included within liability calculation and replaced with depreciation from ROU assets and finance costs
    - - Allowing 'off balance sheet' financing
- - - - Initial measurement
        
        PV of lease payments not paid at the commencement date
        
        Discounted at the interest rate implicit in the lease or the lessee's incremental borrowing date
        
        Items to be included and discounted
        
        Fixed payments
        
        Variable payments that depend on the index such as CPI or rate
        
        Amounts expected to be payable under residual guarantee
        
        Purchased options if reasonably certain to be excercised
        
        Other variable costs that arise due to the level of use of the asset
        
        Accounted for as period costs in the P/L
      - Subsequent measurement
        
        Amortisation method
      - Remasurement
        
        Lease liability is remeasured if necessary for any reassessment of amount payable
        
        The revised lease payments are discounted using the original discount interest rate where the change relates to an expected payment on
        
        Residual value guarantee or
        
        Payments linked to an index or rate (an a revised discount rate where there is a change in lease term, purchase option or payments linked to a floating interest rate)
        
        Changes to the lease liability is recognised as an adjustment to the ROU asset or P/L if the ROU asset is reduced to 0
    - - Initial measurement
        
        Cost
        
        Amount of initial measurement of lease liability
        
        Payments made at or before the lease commencement date less any incentive received
        
        Initial direct costs such as legal costs incurred by the lessee
        
        An estimate of the dismantling costs and restoration costs at the end of lease period (where an obligation exists)
      - Subsequent measurement
        
        Cost less accumulated depreciation and impairment losses (IAS 16)
        
        Depreciation
        
        At the earlier of UL and LT
        
        Alternative
        
        IAS 16 Revaluation model
        
        Where assets measured using revaluation model
        
        Where elected, must apply to all ROU assets relating to the asset
        
        Optional
        
        IAS 40 FV model
        
        Compulsory if the asset meets the def. of investment property and lessee uses FV model for its investment property
- - - - Results in deferred tax asset
      - Tax deductions are allowed on the lease rental payment made, which at the beginning of the lease, is lower than the combined depreciation expense and finance cost recognised for the accounting
      - Therefore, future tax savings on the additional accounting deductions is recognised now in order to apply the accruals concept