Lease Accounting as per IFRS 16 vs. IAS 17
For Lessees
| For Lessees | |||
| Sl. No | Topic | IFRS 16 | IAS 17 |
| 1 | Definition of a lease | As per IFRS 16, a lease is a contract that conveys the right to control the use of an underlying asset for a period of time in exchange for a consideration Throughout the period of use, the customer should have the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset | IAS 17 defines a lease as an agreement whereby the lessor conveys to the lessee, in return for a series of payments, the right to use an asset for an agreed period of time. There is no need to determine whether an arrangement contains a lease. Also it is not necessary for an arrangement to convey the right to control the use of an asset to be in scope of IAS 17 |
| 2 | Short term leases exemption | Can elect, by class of underlying asset to which the right-of-use relates, to apply leases with a lease term of 12 months or less and without a purchase option | No such exemption is available |
| 3 | Leases of low value assets exemption | Allowed to elect, to apply leases of low-value assets like tablets and personal computers, small items of office furniture and telephones | No such exemption is available |
| 4 | Lease classification | Entities can apply a single recognition and measurement approach for all leases. Option not to recognise right-of-use assets and lease liabilities for short-term leases and leases of low-value assets. No classification as finance lease and operating lease | A dual recognition and measurement approach is applied for all leases. A lease is classified as a finance lease if the entity transfers substantially all the risks and rewards incidental to ownership. Otherwise a lease is classified as an operating lease. |
| For Lessees | ||||
| Sl. No | Topic | IFRS 16 | IAS 17 | |
| 5 | Lease liability | Lease liability is measured initially at the present value of the lease payments to be made over the lease term. Lease payments include: 1. Fixed payments less any lease incentives receivable 2. Variable lease payments that depend on an index or a rate 3. Amounts payable by the lessee as residual value guarantees 4. The exercise price of a purchase option if the lessee is reasonably certain to exercise that option 5. Penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease | Finance leases are recognised as assets and liabilities at the fair value of the leased property or the present value of the minimum lease payments whichever is lower. This is determined at the inception of the lease | |
| 6 | Asset – Right-of-use | Right-of-use asset includes the following: 1. Lease liability 2. Lease payments made at or before the commencement date, less any lease incentives received 3. Initial direct costs 4. Asset retirement obligations, not resulting in inventories | Minimum lease payments are the payments over the lease term that the lessee is required to make, any amounts guaranteed by the lessee or by a party related to the lessee. For operating leases no assets and liabilities are recognised for the initial measurement of operating leases | |
| 7 | Reassessment of lease liability | Lease liability is remeasured when there is a lease modification that is not accounted for as a separate contract. Required to remeasure lease payments upon any change in the following: 1. The lease term 2. The assessment of whether the lessee is reasonably certain to exercise an option to purchase the underlying asset 3. The amounts expected to be payable under residual value guarantees 4. Future lease payments resulting from a change in an index or rate | There is no remeasurement of lease liability as per IAS 17 |
| For Lessees | |||
| Sl. No | Topic | IFRS 16 | IAS 17 |
| 8 | Fair value model | If fair value model is applied in IAS 40 to its investment property, the entity should apply the fair value model to right-of-use assets as well which are investment property, under IFRS 16 | Property interests accounted for as investment property is measured as per IAS 40 and it is outside the scope of IAS 17 |
| 9 | Lease modifications not resulting in a separate lease | Lease liability is remeasured by discounting the revised lease payments using a revised discount rate with a corresponding adjustment to right-of-use asset Any gain or loss relating to the partial or full termination of the lease is recognised in the profit and loss account | Lease modifications are not dealt with by IAS 17 |
| 10 | Disclosures | Detailed disclosures including the format of disclosure, are required under IFRS 16. In addition, qualitative and quantitative information about leasing activities is required in order to meet the disclosure objective. | Quantitative and qualitative disclosures are required which are substantially fewer disclosures than under IFRS 16 |
| 11 | Sale and leaseback transactions – determining whether a sale has occurred | Entities should apply the requirements in IFRS 15 to determine whether a sale has occurred in a sale and leaseback transaction | IAS 17 focuses on whether the leaseback is an operating or finance lease and does not explicitly require the transfer of the asset to meet the requirements for a sale in accordance with IAS 18 |
| 12 | Sale and leaseback transactions – accounting for transactions at fair value | The seller-lessee should measure the right-of-use asset arising from the leaseback based on the previous carrying amount. Any gain or loss relating to the rights transferred to the buyer-lessor should be recognised in the profit and loss account | If a sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying amount are deferred and amortised over the lease term. If a sale and leaseback transaction results in an operating lease, any profit or loss should be recognised immediately |
| For Lessees | |||
| Sl. No | Topic | IFRS 16 | IAS 17 |
| 13 | Sale and leaseback transactions – accounting for transactions not at fair value | The entity is required to measure the sale proceeds at fair value with an adjustment either as a prepayment of lease payments when it is below market terms or as additional financing when it is above market terms as applicable | If the transaction results in an operating lease and where the sale price is 1. Below fair value – Profit or loss is recognised immediately. However where the loss is compensated for by future lease payments at below market price, then the same is deferred and amortised in proportion to the lease payments over the period for which the asset is expected to be used 2. Above fair value – the excess over fair value is deferred and amortised over the period for which the asset is expected to be used |
For Lessors
| For Lessors | |||
| Sl. No | Topic | IFRS 16 | IAS 17 |
| 1 | Lease modifications to an operating lease | Lessors account for a modification to an operating lease as a new lease from the effective date of the modification, considering any prepaid or accrued lease payments relating to the original lease as part of the lease payments for the new lease | Not dealt with by IAS 17 |
| 2 | Lease modifications not resulting in a separate lease | 1. Account for the modification as a new lease, if based on the modifications, the lease would have been an operating lease at the inception date 2. The carrying amount of the underlying asset would be measured as the net investment in the lease immediately before the effective date of the modification Otherwise the modification is accounted for in accordance with IFRS 9 Financial Instruments | Not dealt with by IAS 17 |
