IFRS 16 Lessor Presentation

Assuming the following, what is the lease receivable on initial recognition?

An asset is leased on the following terms:

• Term: Three years
• Carrying amount: £20,000 receivable in arrears at the end of each of the three years
• Unguaranteed residual value at the end of the lease term: £1500
• Lessor’s initial direct costs £1,335
• Rate implicit in the lease: 3.95%

Lease receivable on initial recognition: £20,000 + £1,335 = £21,335, which includes the lessor’s initial direct costs of entering into the lease.

What is the subsequent measurement of the lease receivable?

Lease receivable = Balance at the end of the year - balance at the beginning of the year - interest + lease payment

What is the total finance income?

• Gross investment in the lease = minimum lease payments receivable + unguaranteed residual value: £21,600 + £1,500 = £23,100
• Net investment in the lease = the carrying amount of £20,000 + the initial direct costs of £1,335 = £21,335
• The total finance income is the difference between the gross investment of £23,100 and net investment of £21,335 = £1,765

How is this presented in the statement of profit and loss?

Now, assume the lessor classified the lease as an operating lease, how does presentation in the profit and loss statement differ?

The depreciation over three years = carrying amount of the asset (£20,000) + initial direct costs (£1,335) - unguaranteed residual value (£1,500) = £19,835.