Real Property / Leases / Lease Portfolio / Extension for Lease Accounting

To Enter a Transition Lease (IFRS 16)

A transition lease is one with a start date before the Effective Date (2019-01-01 for a public company) but an End Date after that Effective Date.

For IFRS 16 leases, there are three methods for entering transition leases:

Name Method ROU Asset Value Classification Date How Established
Full Retrospective
  • Companies apply the new standard retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimate and Errors
  • Is calculated from the original lease Start Date and assumptions. Lease Start Date Chosen for all leases using the application parameters. See Set up Default Transition Dates and Preferences.

    Modified Retrospective--Option 1 ROU

    As if IFRS 16 was always applied Is calculated from the original lease Start Date, but the Incremental Borrowing Rate is chosen as appropriate at the time of transition. Lease Start Date Chosen on a lease-by-lease basis in the Lease Classification Wizard

    Modified Retrospective--Option 2 ILL

    Based on Remaining Lease Liability

    Is calculated to be equal to the remaining Lease Liability.

    Date of Initial Application

    Chosen on a lease-by-lease basis in the Lease Classification Wizard

    The differences between entering a transition ASC 842 Lease and a non-transition lease are:

    Procedure

    Prerequisite: Set up Default Transition Dates and Preferences.

    1. In the Real Property / Leases / Lease Portfolio / Lease Portfolio Console, enter this data:
    Start Date Enter the full legacy Lease Start Date and End Dates
    Costs Enter Costs per the IAS 17 and IFRS 16, with gross lease costs (e.g. taxes, maintenance, insurance, etc.) broken out as separate Cost Categories from Base Rent but assigned to the lease.
    Options Enter your options the same as for a new ASC 842 or IFRS 16, as described in Entering your Leases and Lease Options with the Lease Portfolio Console.
    1. In the Real Property / Leases / Lease Portfolio / Lease Classification Wizard, enter this data:
    FASB/IASB Lease Type

    Choose either:

    • IASB–Land or Building
    • IASB–Equipment
    Modified Retrospective Approach

    If you have set the “IFRS Retrospective Approach” to “Modified”, the program enables this control.

    Make one of these selections for each lease:

    • Modified Option 1 ROU – The program retrospectively calculates the legacy lease schedule as if IFRS always applied, however using an initial borrowing rate appropriate for the transition date.
    • Modified Option 2 ILL– The program calculates the remaining Lease Liability going forward from the Classification.
    Commencement Date

    If you are using Full Retrospective or Modified--Option 1 ROU, this value defaults to the Lease Start Date.

    If you are using Modified--Option 2 ILL, this value defaults to the Date of Initial Application (2017-01-01 for a public company).

    Previous Lease Classification

    If your Commencement Date is after your Lease Start Date, the program enables this control. Change it to one of these selections:

    • IAS 17 – Operating Lease
    • IAS 17 – Capital Lease

    Outcome