IFRS 16

No, there aren’t yet, but there will be soon

Try this:

A 7 year lease, asset fair value of $12,900, annual instalments of $2,650, annual interest charge of 10%, instalments paid at the end of each year (“in arrears”)

B/F + Interest – Instalment =C/F

12,900 1,290 (2,650) 11,540
11,540 1,154 (2,650) 10,044
10,044 1,004 (2,650) 8,398
8,398 840 (2,650) 6,588
6,588 659 (2,650) 4,597
4,597 460 (2,650) 2,407
2,407 241 (2,650) -3

At the end of year 1, there is a capital amount outstanding of $11,540 because that first instalment paid the $1,290 interest that had accrued during the year and the remainder of the instalment paid off some of the capital liability leaving $11,540 to carry forward

At the end of year 2, there is a capital amount outstanding of $10,044 because the second instalment paid the $1,154 interest that had accrued during the second year and the remainder of the instalment paid off some of the capital liability leaving $10,044 to carry forward

And for the end of the third year, there is a capital amount outstanding of $8,398 because the third instalment paid the $1,004 interest that had accrued during the third year and the remainder of the instalment paid off some of the capital liability leaving $8,398 to carry forward

And so on

Now, accept that, at the end of the first year there is an amount outstanding of $11,540 and that liability will be part-paid at the end of the second year with the remainder paid at the end of the third, fourth, fifth, sixth and seventh years

So only the capital amount outstanding that will be paid off at the end of the second year is a current liability

All the rest is a long-term liability

But we know how much capital is outstanding at the end of the second year ($10,044) and at the end of the first year the capital outstanding was $11,540

So, within that second instalment there must have been a capital repayment element of $11,540 – $10,044 = $1,496 … and THAT is the current liability at the end of year 1

Also, at the end of year 1 we can see that $10,044 is payable more than 12 months hence and that is therefore the amount classed as a deferred liability

OK?