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Presentation of IFRS 16

Presentation of IFRS 16

27 septembre 2018

Marie-Laure Navelot



  Marie-Laure Navelot, Consultant & Consolidator Trainer for Amelkis





Objective reasons

  • - IAS 17 was based on the risks and rewards of ownership of the asset and not its use
  • - Lack of visibility on assets used for operations
  • - Comparability between the companies not really assured
  • - Rating agencies and analysts / investors retracted lease agreements without referring to the
  • - Better control of financial information

The great Principles

  • - Study of all contracts to determine their rental component
  • - Restatement of the lease component of all contracts
  • - Recognition of a right of use in the asset (qualification of the underlying asset)
  • - Recognition of a lease debt on the liabilities side
  • - Amortization of the right of use
  • - Replacement rent by repayment of debt + financial burden

Rental component

  • - Lease agreement: Contract or part of a contract which confers the right to use an asset for a given period for a consideration
  • - Existence of an identified asset: Identified explicitly or implicitly. Can not be replaced by the supplier
  • - Control by the lessee: The lessee benefits from all the economic benefits arising from the use of the asset. Right to decide how and for what purpose to use the asset

You said : discounting ?

Like many of its peers, IFRS 16 requires an updated calculation of future payments. Who says discounting, says discount rate. Under IFRS 16, there may be two cases where there is an implicit rate and it must be used, or there is no implicit rate and it is up to the company to determine its discount rate.

Implicit rate

There is an implicit rate where the lessor does not intend to hold the asset at the end of the contract.

  • - Purchase option at the end of the contract
  • - Residual value of low value

This rate must be easily determinable. It clearly concerns finance lease, leasing, LOA, etc. Overall: nothing changed compared to IAS 17

Marginal debt ratio

In the absence of an implicit rate, the entity must determine a specific discount rate for each leased asset. It must correspond to the entity's marginal debt ratio, given its specific context and the nature of the asset ... In this context, the marginal rate is used to determine the lease debt.

Right of use = rental debt + any specific costs

Two calculation methods

Financing lease (ie: with implicit rate) : we know the debt (value of the financed property) but we do not know the rate. it must be calculated

Rental 'simple' (ie: without implicit rate): we determine the rate, but we do not know the rental debt. it must be calculated

Subsequent changes: events

  • - Termination before maturity (residual assets and liabilities recycled in profit or loss)
  • - Modification of the duration
  • - Change in the probable exercise of the call option (discounted discount rate)
  • - Modification of future rents (index variable rents)
  • - Decrease of user fees and related rents (at initial discount rate)
  • - Addition of new user rights and related rents (new contract)


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