How is IFRS 16 different from the old lease standard IAS 17?

The main difference is that IFRS 16 eliminates the classification of leases as either operating or finance leases for a lessee and instead requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.

What are the exemptions in IFRS 16?

There are two optional exemptions: for short-term leases (12 months or less) and for leases where the underlying asset is of low value (e.g., personal computers, office furniture).

What if I can't determine the interest rate implicit in the lease?

If the implicit rate cannot be readily determined, you must use your company's incremental borrowing rate, which is the rate of interest the company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value.

How many hours should I spend on IFRS 16?

Focus on understanding the core mechanic of lessee accounting first, which might take 2-3 focused hours. After that, practice one question a week for 30-45 minutes to keep the knowledge fresh rather than trying to cram it all at once.

Am I ready for an IFRS 16 exam question?

You are ready if you can consistently set up the initial recognition of the ROU asset and lease liability and correctly calculate the interest, principal, and depreciation for the first year. Don't worry about complex modifications at first; master the basics.

What is the biggest risk with IFRS 16 in the exam?

The biggest risk is making a calculation error at the start (e.g., the present value of the liability) and carrying it all the way through; mitigate this by showing your workings clearly so the examiner can award marks for the correct method even if the numbers are wrong.

Why do we add back interest to the lease liability?

The lease liability is a loan, so it accrues interest over time. This unwinding of the discount increases the liability before any payments are deducted, reflecting the time value of money.

How do I deal with lease incentives?

Lease incentives (like cash received from the lessor) are deducted from the Right-of-Use asset's initial cost, which in turn reduces the annual depreciation charge.

ACCA

IFRS 16 Leases: A Clear Guide

Master the IFRS 16 leases accounting treatment. Our guide provides a clear definition, structured breakdown, and a worked example to help you pass your ACCA.

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