Under IFRS 16, how is a lessor classified and what is recognized?

Under IFRS 16, how is a lessor classified and what is recognized?

• A. As either operating or finance lease, recognizing lease income or a lease receivable.
• B. Only as an operating lease; no asset or liability recognized.
• C. Only as a finance lease; no lease income recognized.
• D. Leases are not recognized by lessors.

Answer: (A)

The key idea is how a lessor accounts for leases under IFRS 16 by classifying them into two types and recognizing differently. A lease is either a finance lease or an operating lease based on whether substantially all the risks and rewards of ownership are transferred to the lessee. If it’s a finance lease, the lessor derecognizes the underlying asset and records a net investment in the lease (a lease receivable) on the balance sheet. Over time, it earns interest income on that net investment as payments are received. If it’s an operating lease, the asset stays on the lessor’s balance sheet and lease income is recognized over the lease term, typically on a straight-line basis (or as specified by the lease). So, the lessor is classified as operating or finance, and the recognition is either lease income (operating) or a lease receivable/net investment (finance).

The key idea is how a lessor accounts for leases under IFRS 16 by classifying them into two types and recognizing differently.

A lease is either a finance lease or an operating lease based on whether substantially all the risks and rewards of ownership are transferred to the lessee. If it’s a finance lease, the lessor derecognizes the underlying asset and records a net investment in the lease (a lease receivable) on the balance sheet. Over time, it earns interest income on that net investment as payments are received.

If it’s an operating lease, the asset stays on the lessor’s balance sheet and lease income is recognized over the lease term, typically on a straight-line basis (or as specified by the lease).

So, the lessor is classified as operating or finance, and the recognition is either lease income (operating) or a lease receivable/net investment (finance).