Chapter 18: Leases (IFRS 16)

Example 4 - Lessee accounting. On 1 January 2015, Plum entered into a five year lease of machinery. The machinery has a useful life of six years. The annual lease payments are $5,000 per annum, with the first payment made on 1 January 2015. To obtain the lease Plum incurs initial direct costs of $1,000 in relation to the arrangement of the lease but the lessor agrees to reimburse Plum $500 towards the costs of the lease. The rate implicit in the lease is 5%. The present value of the minimum lease payments is $22,730. Schedules are rounded to the nearest $ each year.

Example 3 - Lease and non-lease components. Pear enters into a contract for the use of an item of machinery and its annual maintenance for a combined total of $100,000 per annum, payable at the end of the lease period. The rental of the machinery without any maintenance is $95,000 per annum, whilst a stand-alone maintenance contract is $10,000 per annum.

Example 1 - Low-value assets. Banana leases out a machine to Guava under a four year lease and Guava elects to apply the low-value exemption. The terms of the lease are that the annual lease rentals are $2,000 payable in arrears. As an incentive, Banana grants Guava a rent-free period in the first year.