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Leases of low-value assets 1.7 In addition to the recognition and measurement exemption for short-term leases, IFRS 16 also provides a recognition exemption for leases of low-value underlying assets. IFRS 16 provides some guidance as to how to assess whether an underlying asset is of low value.

Variable lease payments depending on the future sales or use of the asset. Well, under the definitions in IFRS 16, the payments NOT depending on the rate or index DO NOT enter into your lease payments. In other words they are excluded. Instead, they are recognized in profit or loss when incurred.

Who does IFRS 16 apply to? Initially, at least, these changes will only apply to organisations that already report using IFRS, typically international companies or PLCs. The majority of SMEs report to the UK's generally accepted accounting principles (UK GAAP) and this is unlikely to change until around 2022/23.

IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.

Accounting for leases. With a very few exceptions (see section 3.4 for further details) IFRS 16 abolishes the distinction between an operating lease and a finance lease in the financial statements of lessees. Lessees will recognise a right of use asset and an associated liability at the inception of the lease.

IFRS 16 defines a lease as ?A contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for consideration?. In order for such a contract to exist the user of the asset needs to have the right to: Obtain substantially all of the economic benefits from the use of the asset.

IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value.