Take a relaxed approach to IFRS 16 - The LucaNet leasing app, with new features
The time for initial application of IFRS 16 has now come (fiscal years beginning on or after January 1, 2019). Companies are now required to deal with the standard’s incredible complexity as well as the enormous effects it has on balance sheets.
In 2018, we added several new functions to our App for Lease Accounting under IFRS 16. This article will introduce you to some of those features.
The old version of our leasing app already included the following features:
- intuitive operation
- easy-to-follow visualization in LucaNet
- recognition of lease payments either as expenses or in line with the right-of-use model under IFRS 16
The new functions even facilitate the process of entering contract information transparently. We also make it possible for you to create and calculate leases whose contract currency deviates from the entity’s functional currency.
Contract management with the new leasing app - Access to contract documents
Under the lease contract tab, in addition to general contract information - such as contract number, lessee, or asset class - you can now also enter the link to where the original document is stored, be it locally or on a shared drive.
Also new: You can open a document with a simple click on the corresponding button without uploading. That makes it easier for you to reconcile the information stored in the app with the information in the actual contract.
New under IFRS 16: Enter extension options in a separate table
Apart from a lease contract’s base term, you can now also enter extension options in a separate table under the tab Lease term. You can enter any number of extension options in the table. By checking the Exercise option box, you can decide whether you plan to exercise the option or not.
An extension option will not be included in the lease term until you have set a check mark. If the lease term is reassessed, then a remeasurement of the lease liability will be performed when saving the revision - based on the adjusted lease term. The same procedure also applies for termination and purchase options, of course. They, too, can be entered in separate fields now. In a second step, the check is used to decide whether exercising the option is reasonably certain and therefore needs to be taken into account in calculating the lease liability.
In line with IFRS 16 requirements: Calculations for contracts in a foreign currency
One significant new feature is the ability to apply and run calculations for leases in a currency that deviates from the functional currency of an entity. Under the Payment schedule tab, you can now select any contract currency for which LucaNet has an exchange table.
The lease payments are made in a currency different from that of the entity? The app carries out the currency translation in line with IAS 21 - The Effects of Changes in Foreign Exchange Rates. The right-of-use asset is a non-monetary item translated at historical exchange rates. The lease liability, on the other hand, represents a monetary item that is translated using closing rates. Foreign exchange differences are recognized in the statement of profit or loss.
Enter graduated lease payments in lease contracts under IFRS 16
If a contract includes graduated lease payments, then future lease payments can now also be recorded in a separate table. The lease liability needs to account for increases in lease payments right already at the commencement date of the lease. It is irrelevant whether the increases come as percentages or absolute amounts. There are now separate tables available for both instances.
Leasing app facilitates a breakdown of liabilities for disclosures
The disclosures under IFRS 16 require not only a breakdown of lease liabilities into current and non-current items. They also require a detailed maturity analysis in line with IFRS 7 - Financial Instruments: Disclosures.
That is why the new version of the leasing app offers a breakdown of lease liabilities into a
- short-term portion (repayment within one year),
- mid-term portion (repayment in one to five years), and
- long-term portion (repayment in more than five years).
The maturity analysis requires a breakdown of non-discounted payments. That means, for disclosure purposes, you are able to
- duplicate your contracts,
- apply a discount rate of zero percent, and
- present them in a separate statistical ledger.
There you can see the breakdown required for disclosures at a glance.
We’ve put together comprehensive information for you on IFRS 16 in a white paper:
“Ready for IFRS 16? The new accounting standard for leases”, which is available for download, free of charge.
Should you have further questions on the subject of IFRS 16 or our leasing app, contact our experts under firstname.lastname@example.org.