IASB issues a new Accounting Standard – IFRS 16 | Leases
International Accounting Standards Board (IASB) has issued a new standard (as mentioned below) which is effective from annual period of 1 January 2019.
- IFRS 16 – Leases – effective from 1 January 2019
- All leases being recorded on balance sheet (except, as an option, for low value and short-term leases)
- Increased disclosure about the entity’s leasing activities including tables for the types of assets leased
- New requirement will affect lessee’s financial statement as all leases are required to be brought on-balance sheet.
- The new standard will affect balance sheet and balance sheet-related ratios such as the debt/equity ratio.
- Impact on the income statement as the entity now has to recognize interest expense on the lease liability and depreciation on the ‘right-of-use’ asset.
- Changes in presentation as EBIT and EBITDA will be higher for companies that have material operating leases.
- Cash flow disclosures will change as cash payments for the principal portion of the lease liability will be classified within financing activities and interest on the lease liability can be presented as operating cash flow (depending on the entity’s accounting policy regarding interest payments).
- Lease term: 5 years
- Economic life: 15 years
- Annual lease payment: AED 10,000
- Discount rate: 8% (Incremental borrowing rate)
- Other: Title to asset remains with the lessee
Tag: IFRS 16, Leases