need to know / leases - project update - BDO International

16 LEASES - A PROJECT UPDATE
LESSOR ACCOUNTING
Recognition and measurement
The proposals will contain two approaches to lessor accounting:
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The ‘receivable and residual’ approach and
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An approach similar to operating lease accounting.
The distinction between the two approaches would be based on the same criteria used for lessee accounting (the extent of
consumption of the leased asset during the lease term) with the same practical expedient if the underlying asset is property
(land and/or a building or part of a building).
The receivable and residual approach would apply to leases under which the lessee acquires and consumes more than an
insignificant portion of the underlying asset over the lease term.
Leases of investment property measured at fair value and short term leases would be outside the scope of the new leases
standard, and the lessor would continue to recognise the underlying asset and recognise lease income over the lease term.
Receivable and residual approach
The lessor would apply the following approach:
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Initially measure a receivable for the right to receive lease payments at the present value of the lease payments, discounted
using the rate the lessor charges the lessee, plus direct costs. The receivable would subsequently be measured at amortised
cost using the effective interest method
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Initially measure the residual asset as an allocation of the carrying amount of the underlying asset. The initial measurement
of the residual asset would comprise two amounts:
(a) The gross residual asset, measured at the present value of the estimated residual value at the end of the lease term
discounted using the rate the lessor charges the lessee; and
(b) The deferred profit (that is, the element of any difference between the fair value and book value of the leased asset that
relates to the retained, residual, asset), measured as the difference between the gross residual asset and the allocation
of the carrying amount of the underlying asset.
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Subsequently measure the gross residual asset by accreting this to the estimated residual value at the end of the lease term
using the rate the lessor charges the lessee.
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Defer recognition in profit or loss of the profit relating to the residual asset until the point at which that asset is sold or released.
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Present the gross residual asset and the deferred profit together as a net residual asset.
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Apply IAS 36 Impairment of Assets, when assessing whether the residual asset is impaired.