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Sir ,
In relation to leasing , Does IFRS 16 supersede IAS 17 ? For instance , the respective technical articles on the ACCA website says that the lease liability is the present value of the successive annual rental payments whereas IAS 17 states that it’s the lower of the present value of the lease payments and the fair value at the inception date .
Also, what exactly is meant by ” Implicit interest rate ” ?
And lastly ; Is the initial lease liability figure accounted as a non current liability at the inception of the lease and then subsequently altered by the annual rentals and interest payment and why doesn’t the annual rentals appear in the statement of profit or loss ?
#1 – IAS 17 no longer exists (so far as ACCA F7 exams are concerned) … so follow IFRS 16
“Implicit interest rate” – this is the rate of lease interest that is applied to the lease for the purpose of calculating the interest applicable for each appropriate accounting period and for calculating the current and deferred obligations at each successive year end
“Is the initial lease liability figure accounted as a non current liability at the inception of the lease?” No, it’s simply recorded as an obligation. It’s only for the purposes of the allocation of current vs deferred that the obligation is split
“why doesn’t the annual rentals appear in the statement of profit or loss”
If it’s a finance lease, the only applicable element of the lease costs is the interest element – it’s a finance cost
The payments in respect of the capital element of the lease are simply the payments made to settle the obligation to the lessor
However, if it’s a lease and it doesn’t satisfy the definition of a finance lease, then it’s not a finance lease! In that case, the payments made to the lessor are included in the statement of profit or loss in full – they are exactly like the payments that you would make were you to hire some do-it-yourself equipment from your local equipment hire business
Clear?
and then subsequently altered by the annual rentals and interest payment and why doesn’t the annual rentals appear in the statement of profit or loss
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