Hi there, insightful explanation on the new IFRS 16. I wonder, what will be the effect on a company's equity? Assuming SL depreciation approach is used. Thanks !
Hello Sir, i've got a question referred to the repayments of the lessee in period 1 - 4: Is there a reason you assumed that they are steady during the whole lease term? I always thought that repayments increase (IAS 17 - finance lease) with continuous period while interest expenses decrease (actual like an annuity loan). Thank you very much for a declaring answer
Hi Martin, The figure I have included as repayment is both the repayment of capital and interest together. So you are right in that as the lease progresses the interest will fall and the capital will be greater. You just can't see this as I included the 2 in the one repayment figure. But if you were to brake it down you would see exactly as you described. I hope this helps. Best wishes Ryan (First Intuition Reading)
Thx for the explanation: However I search for a formula instead of writing it down. I have several items on one sheet with month instead of year and would prefer not to create 1200 (60 years a 12 months) columns to calculate the actual Leas liability by line? Is there a formula for the accumulated interest or accumulated principal or the actual carrying amount of a lease liability withouth writing down every step? I have tried to solve it by myself. It works for n =1 and n = 2, but in period 3 it does not work anymore:y = Leas liability, i = interest, n = period, x = lease payment example = y = 655, i = 5.9% and x = 155Accumulated interest = y*((1+i)^n-1) -x*((1+i)^(n-1)-1) ?As written it only works for n = 1+2, on 3 and following it does not work anymore. any suggestions? Been working on it since hours and going crazy.
May I ask what if the book value is $372.30 as you mentioned, but lessee paid higher or lower than this amount. How would the accounting treatment be like? Much thanks for the great explanation.
+Tianqi Liu Thanks for your question. The assets and liability are always recognised based on the present value of the lease cash flows irrespective of the leased assets fair value. This is a change from the existing IAS 17 which requires the initial recognition of finance leases at the lower of fair value vs present value of minimum lease payments. I hope this answers your question. Best wishes, First Intuition!
+First Intuition Reading and Thames Valley Woah, never expect such a timely and comprehensive reply! Thanks a lot and this helped me a lot in understanding of the changes! You guys deserve much more view :)
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Great explanation, crystal clear. Thank you very much for your time.
Very clear lecture, well done, appreciate that
You deserve my money, just for me to watch this. Thankyou so much
Thanks a lot, it's very clear and straightforward.
Thanks for explaining it so well.
Great explanation. Thank you.
Extremely clear. Thank you!
Easy to understand!! Thank you
Hi there, insightful explanation on the new IFRS 16. I wonder, what will be the effect on a company's equity? Assuming SL depreciation approach is used. Thanks !
Hello Sir, i've got a question referred to the repayments of the lessee in period 1 - 4: Is there a reason you assumed that they are steady during the whole lease term? I always thought that repayments increase (IAS 17 - finance lease) with continuous period while interest expenses decrease (actual like an annuity loan).
Thank you very much for a declaring answer
Hi Martin,
The figure I have included as repayment is both the repayment of capital and interest together. So you are right in that as the lease progresses the interest will fall and the capital will be greater. You just can't see this as I included the 2 in the one repayment figure. But if you were to brake it down you would see exactly as you described.
I hope this helps.
Best wishes
Ryan (First Intuition Reading)
Thx for the explanation: However I search for a formula instead of writing it down. I have several items on one sheet with month instead of year and would prefer not to create 1200 (60 years a 12 months) columns to calculate the actual Leas liability by line? Is there a formula for the accumulated interest or accumulated principal or the actual carrying amount of a lease liability withouth writing down every step? I have tried to solve it by myself. It works for n =1 and n = 2, but in period 3 it does not work anymore:y = Leas liability, i = interest, n = period, x = lease payment example = y = 655, i = 5.9% and x = 155Accumulated interest = y*((1+i)^n-1) -x*((1+i)^(n-1)-1) ?As written it only works for n = 1+2, on 3 and following it does not work anymore. any suggestions? Been working on it since hours and going crazy.
So as per IFRS 16, there is no classification of either being a fiance lease or operating lease?
Hi Komal, that's right. But there is the recognition exemption mentioned at then end.
A DOUBT!!!
So under an Operating lease, the asset will be recognized on the Balance sheet of the lessee as well as the lessor?
How is this possible?
RISHI TEKCHANDANI no lessor will deal with it according ias 17 .... he/she will count it as operating lease only lessee will count it as finance lease
May I ask what if the book value is $372.30 as you mentioned, but lessee paid higher or lower than this amount. How would the accounting treatment be like? Much thanks for the great explanation.
+Tianqi Liu
Thanks for your question. The assets and liability are always recognised based on the present value of the lease cash flows irrespective of the leased assets fair value. This is a change from the existing IAS 17 which requires the initial recognition of finance leases at the lower of fair value vs present value of minimum lease payments. I hope this answers your question. Best wishes, First Intuition!
+First Intuition Reading and Thames Valley
Woah, never expect such a timely and comprehensive reply! Thanks a lot and this helped me a lot in understanding of the changes! You guys deserve much more view :)