We expect that most subleases under ASC 842 will be classified as operating leases, while most subleases under IFRS 16 will be classified as finance leases by the sublessor. Article, Business implications of the new lease accounting standard, August 2018. Further resources.

Under IAS 17, leases are accounted for either as operating lease or finance lease. This … Operating lease contract under IFRS 16. New IFRS 16 removes this discrepancy and puts most leases on balance sheet. The new IFRS 16 introduces a new definition of a lease. Introduction and context setting. IFRS 16 requires different and more extensive disclosures about leasing activities than IAS 17. I’ll show you how in the next paragraphs. Lease payments comprise (IFRS 16.27): fixed payments, less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be payable by the lessee under residual value guarantees, A new lease accounting standard, IFRS 16, will become mandatory for entities using IFRS or FRS 101 for accounting periods commencing on or after 1 January 2019. The objective of the disclosures is to provide users of financial statements with a basis to assess the effect of leasing activities on the entity’s financial position, performance and cash flows.
The introduction of new accounting standard IFRS 16 from 1 January 2019 introduces significant changes governing the treatment of leases. The lease liability should be initially recognised and measured at the present value of the lease payments (IFRS 16.26). International Financial Reporting Standard (IFRS ®) 16 – Leases - was issued in January 2016 and, in comparison to its predecessor International Accounting Standard (IAS ®) 17 makes significant changes to the way in which leasing transactions are reported in the financial statements of lessees (although not in the financial statements of lessors). Prior to the introduction and implementation of IFRS 16, accounting for operating lease is treated off- balance. The standard will affect entities that lease property and equipment including land and building, as an option to outright purchase. 1. The lease liability is calculated as all the lease payments not paid at the commencement date discounted by the interest rate implicit in the lease or incremental borrowing rate. The International Financial Reporting Standards Foundation is a not-for-profit corporation incorporated in the State of Delaware, United States of America, with the Delaware Division of Companies (file no: 3353113), and is registered as an overseas company in England and Wales (reg no: FC023235). Under IFRS 16, ABC needs to recognize the right of use asset and the lease liability. However, it is very similar to the old definition in older IAS 17 (differences do exist). Let’s see what has changed.

The possible impact for M&A deals as a result of the new lease accounting standard, IFRS 16.