PRACTICAL ASPECTS OF ACCOUNTING AND EVALUATING LEASE IN THE LESSEE ACCORDING TO IFRS 16 «LEASE»

Abstract

International Financial Reporting Standard (IFRS) 16 «Leases» main provisions were discussed in the article. The purpose of this Standard is to resolve issues of financial statements users arising from differences in accounting methods for operating and financial leases. Excluding lease assets and liabilities from the balance sheet gives investors insufficient information about the financial condition of tenants. The new lease accounting standard IFRS 16 "Leases" for all lease agreements introduces a requirement for a single lease accounting model. According to this model, any lease, both operational and financial, should be recognized both in assets and in the liabilities of the lessee's balance sheet. At the date of commencement of the lease, the lessee assesses the asset in the form of the Right to use at cost and the lease liability at the discounted value of the lease payments.

After initial recognition, the lessee assesses the asset in the form of the Right of Use, using the cost accounting model or revaluation model in accordance with IAS 16 «Property, Plant and Equipment» (thus, the lessee recognizes depreciation and accumulated impairment losses in the Statement of Profit or Loss, and revaluation - in other comprehensive income, if the appropriate model is used).

After the initial recognition of the lease liabilities, the lessee distributes the discount to the lease liabilities between the reporting periods during the lease term applying the interest rate to the balance of liabilities at the beginning of the reporting period. Due to the fact that the operating leases will be recognized in the Balance Sheet, the lessee will have more assets, but at the same time, the value of liabilities will increase.

Recognition of additional assets and liabilities, as well as changes in the order of presentation, will be reflected in the key performance ratios of the lessee: one can expect changes in the structure of the assets (the value of long-term assets will increase) and  liabilities (the share of own capital will decrease), liquidity indicators will decrease. In order to assess the potential impact of the approaches proposed in the standard, the company will need to conduct an additional analysis and interpret the requirements of the standard, taking into account their own facts, circumstances, and individual operations.