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The accounts department where I work currently have stated that they wont recognize a “right of use” asset and a “lease liability” because the external auditor said they can continue treating our “leases” as “prepayments”
Is this right?
see an extract from the notes to our accounts for the year ended 2019:
29. Contingent liabilities and leases Az Bank Nigeria Limited has only short term leases. The Bank has renewal options for all lease contracts for which the renewal is at the discretion of the Bank or jointly with the respective lessor. The Bank prior to commencement prepays a minimum of three (3) years rent. The Bank has each and every lease cancellable by either party; the cancelling party need only give a notice period of not more than 6 months prior to cancellation. Instances where the Bank opts to cancel, all un-utilized rents already prepaid would be refunded by the lessor. Where the lessor opts to cancel, the Bank would be reimbursed un-utilized portions of the rents prepaid.
As required by the standard, the Bank recognizes all of such leases as short term leases with no option to purchase and accounts for them in that manner. Lease payments on short-term leases and leases of low-value assets are recognized as expense in profit or loss on a straight-line basis over the lease term. The Bank did not have any outstanding and non-cancellable operating lease obligations as at 31 December 2019, as all leases are paid in advance. Prepayments in respect of these leases stood at N266 million as at the reporting date.
(a) Lease prepayment & amortization
N`000 2019 2018
Prepayment for leases 265,437 360,209
Amount amortized to P&L during the year 157,668 167,199
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