Under IFRS 16, when does a lessee recognize a right-of-use asset and lease liability?

Under IFRS 16, when does a lessee recognize a right-of-use asset and lease liability?

• A. At the date the lease is signed.
• B. At the lease commencement date.
• C. Only when cash payments begin.
• D. Never, only disclosures.

Answer: (B)

Recognition happens at the lease commencement date. Under IFRS 16, a lessee brings onto the balance sheet a right-of-use asset and a lease liability for most leases, and this occurs when the lessee gains the right to control the use of the identified asset for the lease term. The lease liability is measured as the present value of the lease payments due over the term, discounted at the rate implicit in the lease (or the lessee’s incremental borrowing rate). The right-of-use asset is initially set equal to that lease liability, with adjustments for any initial direct costs and lease incentives, prepaid payments, or other measurement considerations. After recognition, you depreciate the right-of-use asset and recognize interest on the lease liability, with payments reducing the liability over time. Signing the lease moment does not itself trigger recognition unless the commencement date and the right to use the asset occur at that same moment; payments beginning later do not change the timing of recognition. In short, the moment you can start using the asset and owe the payments is when the ROU asset and lease liability appear on the books.

Recognition happens at the lease commencement date. Under IFRS 16, a lessee brings onto the balance sheet a right-of-use asset and a lease liability for most leases, and this occurs when the lessee gains the right to control the use of the identified asset for the lease term. The lease liability is measured as the present value of the lease payments due over the term, discounted at the rate implicit in the lease (or the lessee’s incremental borrowing rate). The right-of-use asset is initially set equal to that lease liability, with adjustments for any initial direct costs and lease incentives, prepaid payments, or other measurement considerations. After recognition, you depreciate the right-of-use asset and recognize interest on the lease liability, with payments reducing the liability over time. Signing the lease moment does not itself trigger recognition unless the commencement date and the right to use the asset occur at that same moment; payments beginning later do not change the timing of recognition. In short, the moment you can start using the asset and owe the payments is when the ROU asset and lease liability appear on the books.