The lessee can present right-of-use assets either separately or in the same line item in which the underlying assets would be presented on the balance sheet. It can present lease liabilities either as a separate line item or together with other financial liabilities. If right-of-use assets or lease liabilities are not presented as separate line items, an entity discloses in the notes their carrying amounts and the line items in which they are included.

Q&A: Presentation of a right-of-use asset resulting from a property lease An entity leases property that does not qualify as investment property. How is the related right-of-use asset presented in the statement of financial position? A lessee should present a right-of-use asset in the statement of financial position either: in a separate line item; or in the same line item that the corresponding underlying asset would have been presented in if it had been owned, with disclosure of which line item includes the right-of-use asset. Thus, a right-of-use asset resulting from the lease of property that is not presented in a separate line item should be classified as a tangible asset (property, plant and equipment). Classification as an intangible asset, on the grounds that a right-of-use asset is akin to a contractual right to use a license, is not acceptable.

The lessee presents right-of-use assets that meets the definition of investment property in accordance with IAS 40, ‘Investment properties’, as investment properties

The lessee presents the depreciation charge of the right-of-use assets in the same line item/items in which similar expenses are shown in the income statement. Interest expense on the lease liabilities is presented as part of finance costs.

The amount of interest expense on lease liabilities must be separately disclosed in the notes.

The lessee classifies lease payments consistently with payments on other financial liabilities in the cash flow statement: The parts of the lease payments that represent cash payments for the principal portion of the lease liabilities are presented as cash flows resulting from financing activities. The parts of the lease payments that represent the interest portion are presented either as operating cash flows or as cash flows resulting from financing activities in accordance with the entity’s accounting policy regarding the presentation of interest payments. Lease payments which were not included in the measurement of the lease liabilities (including certain variable payments, short-term leases and leases of low-value assets) are presented as operating cash flows.

Disclosure – general objective

The objective of the disclosure requirements for lessors is for lessors to disclose information in the notes that, together with the information provided in the statement of financial position, statement of profit or loss and statement of cash flows, gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of the lessor. IFRS 16 specify requirements designed to meet this objective.

The lessor disclosure requirements in IFRS 16 are more extensive than those in IAS 17 to enable users of financial statements to better evaluate the amount, timing and uncertainty of cash flows arising from a lessor’s leasing activities. The disclosure requirements have been expanded to address the perception that the lessor accounting model in IAS 17 does not provide sufficient information relating to all elements of a lessor’s leasing activities.

Disclosures – finance leases

The following amounts should be disclosed for the reporting period for finance leases:

• selling profit or loss;
• finance income on the net investment in the lease; and
• income relating to variable lease payments not included in the measurement of the net investment in the lease.

These disclosures should be presented in a tabular format, unless another format is more appropriate.

A lessor should also:

• provide a qualitative and quantitative explanation of the significant changes in the carrying amount of the net investment in finance leases;
• disclose a maturity analysis of the lease payments receivable, showing the undiscounted lease payments to be received on an annual basis for a minimum of each of the first five years and a total of the amounts for the remaining years; and
• reconcile the undiscounted lease payments to the net investment in the lease. This reconciliation should identify the unearned finance income relating to the lease payments receivable and any discounted unguaranteed residual value.

Lessor disclosure for leases that have not yet commenced – finance leases

The disclosure requirement in IFRS 16 relating to maturity analysis applies only to leases that have commenced on, or before, the reporting date. Generally, the requirements in IFRS 16, such as those for recognition and measurement, apply to leases which have commenced at the reporting date. Accordingly, the disclosure requirements are also considered applicable only to leases that have commenced on or before the reporting date, unless specified otherwise.

If an entity decides to provide information for leases that have not yet commenced at the reporting date because it believes this information is relevant, the entity should distinguish it from the information relating to leases which have commenced at the reporting date.

Disclosures – operating leases

For operating leases, a lessor should disclose its lease income for the reporting period, separately disclosing income relating to variable lease payments that do not depend on an index or a rate.

These disclosures should be presented in a tabular format, unless another format is more appropriate.

or items of property, plant and equipment subject to an operating lease, a lessor should apply the disclosure requirements of IAS 16. For this purpose, each class of property, plant and equipment should be segregated into assets subject to operating leases and assets not subject to operating leases (i.e., the disclosures required by IAS 16 should be provided separately for assets subject to an operating lease (by class of underlying asset) and owned assets held and used by the lessor.

The disclosure requirements in IAS 36, IAS 38, IAS 40 and IAS 41 should be applied for assets subject to operating leases.

A lessor should disclose a maturity analysis of lease payments, showing the undiscounted lease payments to be received on an annual basis for a minimum of each of the first five years and a total of the amounts for the remaining years.

Lessor disclosure for leases that have not yet commenced – operating leases

The disclosure requirement in IFRS 16:97 relating to maturity analysis applies only to leases that have commenced on, or before, the reporting date. Generally, the requirements in IFRS 16, such as those for recognition and measurement, apply to leases which have commenced at the reporting date. Accordingly, the disclosure requirements are also considered applicable only to leases that have commenced on or before the reporting date, unless specified otherwise.

If an entity decides to provide information for leases that have not yet commenced at the reporting date because it believes this information is relevant (see IAS 1) the entity should distinguish it from the information relating to leases which have commenced at the reporting date.

Additional qualitative and quantitative information

A lessor should disclose additional qualitative and quantitative information about its leasing activities necessary to meet the disclosure objective in IFRS 16. This additional information includes, but is not limited to, information that helps users of financial statements to assess:

• the nature of the lessor’s leasing activities; and
• how the lessor manages the risk associated with any rights it retains in underlying assets.

In particular, a lessor should disclose its risk management strategy for the rights it retains in underlying assets, including any means by which the lessor reduces that risk. Such means may include, for example, buy-back agreements, residual value guarantees or variable lease payments for use in excess of specified limits.

Disclosures by lessees

Lessees should disclose information that allows users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of the lessee. The disclosure requirements for lessees are set out in IFRS 16.

Except for embedded derivatives, disclosures of obligations under leases are excluded from the scope of IAS 39 or IFRS 9; however, such obligations are financial instruments, and they should be included in the disclosures required by IFRS 7.

Disclosure by lessors

Lessors should disclose information that allows users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of the lessor. The disclosure requirements for lessors are set out in IFRS 16, and they include the risk management strategy for residual interest in leased assets.

Except for embedded derivatives, disclosures of rights under leases are excluded from the scope of IAS 39 or IFRS 9; however, such rights are financial instruments, and they should be included in the disclosures required by IFRS 7.