BLM17040 - Lease accounting under IFRS 16 and FRS 102 (2024 amendments): subsequent measurement and accounts disclosure

This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.

Right-of-use asset subsequentÌý³¾±ð²¹²õ³Ü°ù±ð³¾±ð²Ô³ÙÌý(IFRS 16.Ìý29 – 35; FRS 102 (2024 amendments)Ìý20.55 - 20.59).Ìý

Subsequently, the lessee shall measure the right-of-use asset under a cost model, except in certain circumstances.Ìý

Under the cost model, the right-of-use asset should be held at cost, less any accumulated depreciation and accumulated impairment losses, and adjusted for any remeasurement.Ìý

Depreciation for the right-of-use asset will be calculated in accordance withÌýeither IAS 16Ìýor FRS 102 Section 17Ìýas appropriate, and impairment would be calculated in accordance withÌýIAS 36Ìýor FRS 102 Section 27.Ìý

If a lessee applies the fair value model in IAS 40Ìýor FRS 102 Section 16Ìýto its investment property, the lessee shall also apply that fair value model to right-of-use assets that meet the IAS 40Ìýor FRS 102 Section 16Ìýinvestment property definition.Ìý

If a right-of-use asset relates to a class of property, plantÌýand equipment to which the lessee applies the IAS 16Ìýor FRS 102 Section 16Ìýrevaluation model, a lessee may electÌýto apply that revaluation model to allÌýthe right-ofuseÌýassets that relate to that class of property, plant and equipment.Ìý

Lease liability subsequentÌý³¾±ð²¹²õ³Ü°ù±ð³¾±ð²Ô³ÙÌý(IFRS 16.Ìý36 –Ìý42; FRS 102 (2024 amendments) 20.62-20.68)Ìý

Subsequently, the lease liability is increased by the unwinding of the interest on the lease, offset by lease payments made, adjusted for any remeasurement in relation to certain lease modifications or to reflect revised in-substance fixed lease payments.Ìý

The interest on the lease should be recognised in the P&L account, along with any variable lease payments not included in the measurement of the lease liability.Ìý

Any remeasurement of the lease liability is also recognised as an adjustment to theÌýright-of-use asset, unless any adjustment would reduce the right-of-use asset to less than zero, in which case the balance is recognised in the profit and loss account.Ìý

Remeasurement occurs when there is a change in lease term, a change in the assessment of the option to purchase, a change in the amount expected to be payable under a residual value guarantee or there is a change to future lease payments resulting from a change in an index or rate used to determine the future lease payments.Ìý

Disclosure (IFRS 16.53)Ìý

Under IFRS 16 aÌýlessee must discloseÌýthe following:Ìý

  • The depreciation charge for right-of-use assets by class of underlying asset;Ìý

  • Interest expense on lease liabilities;Ìý

  • The expense relating to short-term leases;Ìý

  • The expense relating to leases of low-valueÌýassets;Ìý

  • The expense relating to variable lease payments not included in the measurement of lease liabilities;Ìý

  • Income from subleasing right-of-use assets;Ìý

  • Total cash outflow for leases;Ìý

  • Additions to right-of-use assets;Ìý

  • Gains or losses arising from sale and leaseback transactions; andÌý

The carrying amount of right-of-use assets at the period end, by class of assets.Ìý

Under FRS 102 aÌýlessee must discloseÌýthe following (FRS 102 (2024 amendments)Ìý20.80):Ìý

  • Interest expense on lease liabilities;Ìý

  • The expenseÌýrelating to short term leases;Ìý

  • The expense relating to leases of low-valueÌýassets;Ìý

  • The expense relating to variable lease payments not included in the measurement of lease liabilities;Ìý

  • Income from subleasing right-of-use assets;Ìý

  • Total cash outflow for leases;Ìý

  • Gains or losses arising from sale and leaseback transactionsÌý

Under FRS 102 a lessee must also discloseÌýthe following by class of underlying assetÌý(FRS 102 (2024 amendments) 20.81).Ìý

  • The depreciation charge for right-of-use assets;Ìý

  • Additions;Ìý

  • Disposals;Ìý

  • Acquisitions through business combinations;Ìý

  • Revaluations;Ìý

  • Impairment losses;Ìý

  • Depreciation;Ìý

  • The gross carrying amount and accumulated depreciation at the beginning and end of the reporting period;

  • Other changes.Ìý

Further disclosures are requiredÌýwhere the cost model is not used for right-of-use assets. A maturity analysis of lease liabilities is also required, in accordance withÌýIFRS 7 Financial Instruments: DisclosuresÌýand FRS 102 (2024 amendments) Section 11 Basic Financial InstrumentsÌý

AdditionalÌýqualitative and quantitative disclosures may be required.Ìý

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