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Sir in lessee accounting of IFRS-16 we make a subsequent entry that is Finance cost debit, lease liability debit and bank credit but we don’t show the impact of bank credit in subsequent entry of lease in financial statement bcoz of an assumption.
The assumption is that the cash payment or bank payment had been made during the year end and this payment had already been entered into the cash book and the corresponding in lease rental payment account because as at this time we don’t know our actual lease liability for the year, this is why we always see the lease rentals payment at the debit side of the trial balance… Meaning that, the lease rental paid had been debited and the Bank credited. However, this payment consists of the interest charged and the capital repayment.. Therefore it’s necessary to determine total lease liability for the year ends n write off the lease rental payment against it.. So by implication, we are writing off the lease rental payment account by crediting it n debiting the lease liability account as corresponding entry so as to ascertain our net lease liability as at the end of the year and by so doing the 2 accounts relating to the lease rental are now Bank (credit) and Lease Liability (Debit). The lease rental entry in the trial balance exists no more because it has been written off to the lease liability account.
So is this assumption correct?
To cut it short for you sir, in ifrs-16 we make the following entries i.e finance cost debit, lease liability debit and bank credit. But we only the impact of finance cost & lease liability. So I try to find the reason behind of not recording bank credit and I heard that there is an assumption behind not showing impact of bank credit.
The assumption is that we already record the lease rental payment bcoz we dont know the exact liability and we only pass the subsequent entry to asscertain our lease liability. The impact of lease payment in the form of bank credit is already there in the financial statement.
Is this assumption correct?
1. Most importantly DON’T use journals as explanations in Q2/3/4. Your exam answer is for directors who don’t understand double entry bookkeeping.
2. Not quite sure what you are asking. If you are asking how to correct a lease payment that has been incorrectly expensed, then the correcting journal would be:
Dr R of U asset Cr Liability – with PVFLP
Dr Finance cost Cr Liability
Dr Liability Cr Rental expenseBest I can do. Is there a specific exam question that you have in mind?
Thank you for the answer sir but I was just asking the logic behind not showing the impact of bank credit which is included in the subsequent entry for lessee accounting after year 0.
I heard an assumption that we don’t show the impact of bank credit in balance sheet bcoz the impact of bank credit has already been recorded (means that the payment has already been made during the year & recorded in balance sheet in lessee accounting) and the subsequent entry is just to ascertain the lease liability.
So I was just asking that does the said assumption exists or true?
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