In IFRS 16, what is the impact on a lessee's balance sheet and related accounts?

In IFRS 16, what is the impact on a lessee's balance sheet and related accounts?

• A. The lessee recognizes a right-of-use asset and a lease liability with depreciation and interest; the lessor classifies as operating or finance lease, recognizing lease income or a lease receivable.
• B. The lessee only records lease expense on a straight-line basis with no asset.
• C. The lessee recognizes only a lease liability, not an asset.
• D. The lessee recognizes intangible asset and amortization.

Answer: (D)

Under IFRS 16, the main idea is that the lessee must recognize on the balance sheet both a right-of-use asset and a lease liability for most lease contracts. At the start of the lease, the right-of-use asset and the lease liability are measured at the present value of the lease payments (plus any initial direct costs, minus incentives). As the lease progresses, the asset is depreciated and the liability accrues interest. Each lease payment reduces the liability, with part of the payment representing principal and part representing interest expense. This reflects the lessee’s right to use the asset and the obligation to make future payments, bringing lease arrangements onto the balance sheet. The lessor’s accounting depends on how the lease is classified, with operating leases typically generating lease income and finance leases creating a lease receivable and interest income. There are exceptions for short-term or low-value leases where a simplified off-balance-sheet approach may be used.

Under IFRS 16, the main idea is that the lessee must recognize on the balance sheet both a right-of-use asset and a lease liability for most lease contracts. At the start of the lease, the right-of-use asset and the lease liability are measured at the present value of the lease payments (plus any initial direct costs, minus incentives). As the lease progresses, the asset is depreciated and the liability accrues interest. Each lease payment reduces the liability, with part of the payment representing principal and part representing interest expense. This reflects the lessee’s right to use the asset and the obligation to make future payments, bringing lease arrangements onto the balance sheet. The lessor’s accounting depends on how the lease is classified, with operating leases typically generating lease income and finance leases creating a lease receivable and interest income. There are exceptions for short-term or low-value leases where a simplified off-balance-sheet approach may be used.