# IFRS 16 Lessor Presentation

### Saket Modi

20 years: Chartered accountant & educator

In this second part of the series, Saket describes the terms by which an asset is leased and outlines an example.

In this second part of the series, Saket describes the terms by which an asset is leased and outlines an example.

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### IFRS 16 Lessor Presentation

5 mins 28 secs

Overview

This example is about the lessor, the entity whose equipment is being leased.

Key learning objectives:

• Identify how to calculate the lease receivable

• Identify how to calculate the gross investment, net investment, total income and depreciation

• Identify how this is presented in the profit and loss statement

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Summary

#### 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

#### 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.

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### Saket Modi

Saket is a financial trainer and consultant based out of London. He specialises in advanced accounting, financial reporting and financial analysis, particularly with regards to International Financial Reporting Standards (IFRS), International Public Sector Accounting Standards (IPSAS) and Financial instruments.

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