IFRS 16 Summary

Objective
IFRS 16 sets up standards for the recognition, measurement, presentation, and disclosure of
leases, with the objective of guaranteeing that lessees and lessors give important data that
reliably speak to those transactions. [IFRS 16:1]
Scope
IFRS 16 Leases applies to all leases, including subleases, except for: [IFRS 16:3]
- leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources;
- leases of biological assets held by a lessee (see IAS 41 Agriculture);
- service concession arrangements (see IFRIC 12 Service Concession Arrangements);
- licences of intellectual property granted by a lessor (see IFRS 15 Revenue from Contracts with
Customers); and
- rights held by a lessee under licensing agreements for items such as films, videos, plays,
manuscripts, patents and copyrights within the scope of IAS 38 Intangible Assets
A lessee can elect to apply IFRS 16 to leases of intangible assets, other than those items listed
above. [IFRS 16:4]
Recognition exemptions
Rather than applying the recognition prerequisites of IFRS 16 portrayed below, a lessee may
choose to account for lease payments as a cost on a straight-line basis over the lease term or
another systematic basis for the following two sorts of leases:
i) lease with a lease term of 12 months or less and containing no purchase options – this decision
is made by a class of underlying asset; and
ii) leases where the underlying asset contains a low value when unused (such as personal
computers or little things of office furniture) – this decision can be made on a lease-by-lease
basis.
[IFRS 16:5, 6 & 8]
Identifying a lease
A contract is, or contains, a lease in case it passes on the proper to control the use of an identified
asset for a period of time in exchange for thought. [IFRS 16:9]
Control is passed on where the client has both the right to direct the identified asset’s utilize and
to get significantly all the economic benefits from that use. [IFRS 16:B9]
An asset is ordinarily recognized by being expressly specified in a contract, but an asset can
moreover be recognized by being implicitly specified at the time it is made available for utilize
by the customer.
However, where a provider incorporates a substantive right of substitution all through the period
of utilize, a client does not have a right to utilize a distinguished resource. A supplier’s right of
substitution is as it was considered substantive in the event that the provider has both the viable
capacity to substitute elective resources all through the period of utilizing and they would
financially advantage from substitution. [IFRS 16:B13-14]
A capacity portion of an asset is still a recognized asset in case it is physically distinct (e.g. a
floor of a building). A capacity or other portion of an asset that's not physically distinct (e.g. a
capacity portion of a fiber optic cable) isn't a recognized asset unless it represents significantly
all the capacity such that the client gets considerably all the economic benefits from utilizing the
asset. [IFRS 16:B20]
Separating components of a contract
For a contract that contains a lease component and extra lease and non-lease components, such as
the lease of an asset and the provision of maintenance service, lessees might allocate the
consideration payable on the basis of the relative stand-alone costs, which should be evaluated if
observable costs are not readily available.
As a practical expedient, a lessee may choose, by a course of an underlying asset, not to separate
non-lease components from lease components and instead account for all components as a lease.
[IFRS 16:13-15]
Lessors shall allocate consideration in agreement with IFRS 15 Revenue from Contracts with
Customers.
Accounting by lessees
Upon lease commencement, a lessee recognizes a right-of-use asset and a lease liability. [IFRS
16:22]
The right-of-use asset is initially measured at the amount of the lease liability plus any initial
direct costs incurred by the lessee. Adjustments may also be required for lease incentives,
payments at or before commencement and restoration obligations, or similar. [IFRS 16:24]
After lease commencement, a lessee shall measure the right-of-use asset using a cost model,
unless: [IFRS 16:29, 34, 35]
i) the right-of-use asset is an investment property and the lessee fair values its investment
property under IAS 40; or

ii) the right-of-use asset relates to a class of PPE to which the lessee applies IAS 16’s revaluation
model, in which case all right-of-use assets relating to that class of PPE can be revalued.
Under the cost model, a right-of-use asset is measured at cost less accumulated depreciation and
accumulated impairment. [IFRS 16:30(a)]
The lease liability is initially measured at the present value of the lease payments payable over
the lease term, discounted at the rate implicit in the lease if that can be readily determined. If that
rate cannot be readily determined, the lessee shall use their incremental borrowing rate. [IFRS
16:26]
Variable lease payments that depend on an index or a rate are included in the initial measurement
of the lease liability and are initially measured using the index or rate as at the commencement
date. Amounts expected to be payable by the lessee under residual value guarantees are also
included. [IFRS 16:27(b),(c)]
Variable lease payments that are not included in the measurement of the lease liability are
recognized in profit or loss in the period in which the event or condition that triggers payment
occurs unless the costs are included in the carrying amount of another asset under another
Standard. [IFRS 16:38(b)
The lease liability is subsequently remeasured to reflect changes in: [IFRS 16:36]
the lease term (using a revised discount rate); the assessment of a purchase option (using a
revised discount rate); the amounts expected to be payable under residual value guarantees
(using an unchanged discount rate); or future lease payments resulting from a change in an index
or a rate used to determine those payments (using an unchanged discount rate).
The remeasurements are treated as adjustments to the right-of-use asset. [IFRS 16:39]
Lease modifications may also prompt remeasurement of the lease liability unless they are to be
treated as separate leases. [IFRS 16:36(c)]
IBOR Reform
A lessee accounts for alterations required by the IBOR reform (adjustments required as a direct
result of the IBOR reform and made on an economically equivalent basis) by updating the
effective interest rate. All other alterations are accounted for utilizing the applicable
prerequisites. [IFRS 16:105-106]
Accounting by lessors
Examples of situations that individually or in combination would normally lead to a lease being
classified as a finance lease are: the lease transfers ownership of the asset to the lessee by the end
of the lease term the lessee has the option to purchase the asset at a price which is expected to be
sufficiently lower than fair value at the date the option becomes exercisable that, at the
inception of the lease, it is reasonably certain that the option will be exercised the lease term is
for the major part of the economic life of the asset, even if title is not transferred at the inception
of the lease, the present value of the minimum lease payments amounts to at least substantially
all of the fair value of the leased asset the leased assets are of a specialized nature such that only
the lessee can use them without major modifications being made Upon lease commencement, a
lessor shall recognize assets held under a finance lease as a receivable at an amount equal to the
net investment in the lease.
Sales and leaseback transactions
To decide whether the exchange of an asset is accounted for as a sale an entity applies the
prerequisites of IFRS 15 for deciding when a performance obligation is fulfilled. [IFRS 16:99]
If an asset exchange fulfills IFRS 15’s prerequisites to be accounted for as a deal the seller
measures the right-of-use resource at the extent of the past carrying sum that relates to the correct
of utilizing held. In like manner, the dealer as it were recognizes the sum of pick up or
misfortune that relates to the rights exchanged to the buyer. [IFRS 16:100a)]
If the reasonable esteem of the deal thought does not rise to the asset’s reasonable esteem, or on
the off chance that the rent installments are not advertised rates, the deals continue are balanced
to reasonable esteem, either by bookkeeping for prepayments or extra financing. [IFRS 16:101]
Disclosure
The objective of IFRS 16’s disclosures is for data to be provided within the notes that, alongside
data provided within the statement of financial position, statement of profit or loss, and statement
of cash flows, gives a premise for clients to assess the impact that leases have. Paragraphs 52 to
60 of IFRS 16 set out point-by-point prerequisites for tenants to meet this objective and
paragraphs 90 to 97 set out the point-by-point prerequisites for lessors. [IFRS 16:51, 89]

IAS 12 Summary
Objective
The objective of IAS 12 (1996) is to endorse the accounting treatment for income taxes.
In assembly this objective, IAS 12 notes the following:
It is inherent within the acknowledgment of an asset or liability that that asset or liability will be
recouped or settled, and this recuperation or settlement may give rise to future tax consequences
which ought to be recognized at the same time as the resource or obligation An substance ought
to account for the tax consequences of transactions and other occasions within the same way it
accounts for the exchanges or other occasions themselves.
Current tax
The current charge for the current and earlier periods is recognized as a liability to the degree
that it has not however been settled, and as an asset to the degree that the sums as of now paid to
surpass the sum due. [IAS 12.12] The advantage of a assess misfortune that can be carried back
to recoup the current tax of an earlier period is recognized as an asset. [IAS 12.13]
Current tax assets and liabilities are measured at the sum expected to be paid to (recovered from)
tax collection authorities, utilizing the rates/laws that have been sanctioned or substantively
sanctioned by the adjust sheet date. [IAS 12.46]
Tax bases
The tax base of an item is crucial in determining the amount of any temporary difference, and
effectively represents the amount at which the asset or liability would be recorded in a tax-based
balance sheet. IAS 12 provides the following guidance on determining tax bases:
Assets. The tax base of an asset is the amount that will be deductible against taxable economic
benefits from recovering the carrying amount of the asset. Where recovery of an asset will have
no tax consequences, the tax base is equal to the carrying amount. [IAS 12.7]
Revenue received in advance. The tax base of the recognized liability is its carrying amount, less
revenue that will not be taxable in future periods [IAS 12.8]
Other liabilities. The tax base of a liability is its carrying amount, less any amount that will be
deductible for tax purposes in respect of that liability in future periods [IAS 12.8]
Unrecognized items. If items have a tax base but are not recognized in the statement of financial
position, the carrying amount is nil [IAS 12.9]
Tax bases not immediately apparent. If the tax base of an item is not immediately apparent, the
tax base should effectively be determined in such as manner to ensure the future tax
consequences of recovery or settlement of the item is recognized as a deferred tax amount [IAS
12.10]
Consolidated financial statements. In consolidated financial statements, the carrying amounts in
the consolidated financial statements are used, and the tax bases determined by reference to any
consolidated tax return (or otherwise from the tax returns of each entity in the group). [IAS
12.11]
Recognition and measurement of deferred taxes
Recognition of deferred tax liabilities
The general principle in IAS 12 is that a deferred tax liability is recognized for all taxable
temporary differences. There are three special cases to the prerequisite to recognize a conceded
assess risk, as follows:
liabilities emerging from the beginning recognition of goodwill [IAS 12.15(a)] liabilities
emerging from the introductory acknowledgment of an asset/liability other than in a trade
combination which, at the time of the exchange, does not influence either the bookkeeping or the
assessable benefit [IAS 12.15(b)] liabilities emerging from brief contrasts related with ventures
in auxiliaries, branches, and partners, and interface in joint courses of action, but as it were to the
degree that the substance is able to control the timing of the inversion of the contrasts and it is
plausible that the inversion will not happen within the predictable future. [IAS 12.39]
Recognition of deferred tax assets
IAS 12 provides the following guidance on measuring deferred taxes: Where the tax rate or tax
base is impacted by the manner in which the entity recovers its assets or settles its liabilities (e.g.
whether an asset is sold or used), the measurement of deferred taxes is consistent with the way in
which an asset is recovered or a liability settled. Where deferred taxes arise from revalued non-
depreciable assets (e.g. revalued land), deferred taxes reflect the tax consequences of selling the
asset. Deferred taxes arising from investment property measured at fair value under IAS 40
Investment Property reflect the rebuttable presumption that the investment property will be
recovered through sale. If dividends are paid to shareholders, and this causes income taxes to be
payable at a higher or lower rate, or the entity pays additional taxes or receives a refund, deferred
taxes are measured using the tax rate applicable to undistributed profits. Deferred tax assets and
liabilities cannot be discounted.
Presentation
The tax effects of items included in other comprehensive income can either be shown net for
each item, or the items can be shown before tax effects with an aggregate amount of income tax
for groups of items (allocated between items that will and will not be reclassified to profit or loss
in subsequent periods).
Disclosure
IAS 12.81 requires the following disclosures: aggregate current and deferred tax relating to items
recognized directly in equity tax relating to each component of other comprehensive income
explanation of the relationship between tax expense (income) and the tax that would be expected
by applying the current tax rate to accounting profit or loss (this can be presented as a
reconciliation of amounts of tax or a reconciliation of the rate of tax) changes in tax rates
amounts and other details of deductible temporary differences, unused tax losses, and unused tax
credits temporary differences associated with investments in subsidiaries, branches and
associates, and interests in joint arrangements for each type of temporary difference and unused
tax loss and credit, the amount of deferred tax assets or liabilities recognized in the statement of
financial position and the amount of deferred tax income or expense recognized in profit or loss
tax relating to discontinued operations tax consequences of dividends declared after the end of
the reporting period information about the impacts of business combinations on an acquirer's
deferred tax assets recognition of deferred tax assets of an acquiree after the acquisition date.
IAS 19 Summary
Objective
The objective of IAS 19 is to endorse the accounting and disclosure for employee benefits,
requiring a substance to recognize a liability where a worker has provided service and an
expense when the substance consumes the economic benefits of employee service.
Scope
IAS 19 applies to (among other kinds of employee benefits):
- wages and salaries
- compensated absences (paid vacation and sick leave)
- profit sharing and bonuses
- medical and life insurance benefits during employment
- non-monetary benefits such as houses, cars, and free or subsidised goods or services
- retirement benefits, including pensions and lump sum payments
- post-employment medical and life insurance benefits
- long-service or sabbatical leave
- 'jubilee' benefits
- deferred compensation programmes
- termination benefits.
Short-term employee benefits
Short-term representative benefits are those anticipated to be settled entirely sometime recently
twelve months after the conclusion of the year detailing period amid which worker
administrations are rendered, but don't incorporate end benefits. Illustrations incorporate
compensation, pay rates, profit-sharing, and bonuses and non-monetary benefits paid to current
employees.
The undiscounted sum of the benefits anticipated to be paid in regard to benefit rendered by
representatives in an accounting period is recognized in that period. The anticipated fetched of
short-term compensated nonattendances is recognized as the workers render benefit that
increments their entitlement or, within the case of non-accumulating nonattendances, when the
unlucky deficiencies happen and incorporate any extra sums a substance anticipates to pay as a
result of unused privileges at the conclusion of the period.

Profit-sharing and bonus payments

A substance recognizes the expected cost of profit-sharing and bonus payments when, and as it
were when, it encompasses a legitimate or constructive obligation to create such payments as a
result of past events and a reliable estimate of the expected obligation can be made.
Types of post-employment benefit plans
Post-employment benefit plans are informal or formal arrangements where a substance gives
post-employment benefits to one or more representatives, e.g. retirement benefits (annuities or
lump sum payments), life insurance, and medical care.
The accounting treatment for a post-employment benefit plan depends on the financial substance
of the plan and results within the plan being classified as either a defined contribution plan or a
defined benefit plan:
Defined contribution plans. Beneath a characterized commitment arranges, the
substance pays settled commitments into finance but has no lawful or helpful commitment to
form assist installments in the event that the finance does not have adequate resources to pay all
of the employees' privileges to post-employment benefits. The entity's commitment is hence
viably restricted to the sum it concurs to contribute to the support and viably put actuarial and
venture chance on the worker.
Defined benefit plans. These are post-employment advantage plans other than a
characterized commitment plan. These plans make a commitment on the substance to supply
concurred benefits to current and past workers and successfully places actuarial and venture
chance on the substance.
Defined contribution plans
For defined contribution plans, the sum perceived within the period is the contribution payable in
exchange for service rendered by representatives during the period. [IAS 19(2011).51]
Contributions to a defined contribution plan are not anticipated to be entirely settled within 12
months after the conclusion of the yearly announcing period in which the worker renders the
related benefit is reduced to their show esteem. [IAS 19.52]
Basic requirements
An entity is required to recognize the net-defined benefit liability or asset in its statement of
financial position. [IAS 19(2011).63] However, the measurement of a net defined benefit asset is
the lower of any surplus in the fund and the 'asset ceiling' (i.e. the present value of any economic
benefits available in the form of refunds from the plan or reductions in the future contributions to
the plan). [IAS 19(2011).64]

Measurement
The measurement of a net defined benefit liability or assets requires the application of an
actuarial valuation method, the attribution of benefits to periods of service, and the use of
actuarial assumptions. [IAS 19(2011).66] The fair value of any plan assets is deducted from the
present value of the defined benefit obligation in determining the net deficit or surplus. [IAS
19(2011).113]
The determination of the net defined benefit liability (or asset) is carried out with sufficient
regularity such that the amounts recognized in the financial statements do not differ materially
from those that would be determined at end of the reporting period. [IAS 19(2011).58]
The present value of an entity's defined benefit obligations and related service costs are
determined using the 'projected unit credit method', which sees each period of service as giving
rise to an additional unit of benefit entitlement and measures each unit separately in building up
the final obligation. [IAS 19(2011).67-68] This requires an entity to attribute benefit to the
current period (to determine current service cost) and the current and prior periods (to determine
the present value of defined benefit obligations). The benefit is attributed to periods of service
using the plan's benefit formula unless an employee's service in later years will lead to a
materially higher benefit than in earlier years, in which case a straight-line basis is used [IAS
19(2011).70]
Actuarial assumptions used in the measurement
The overall actuarial assumptions used must be unbiased and mutually compatible, and represent
the best estimate of the variables determining the ultimate post-employment benefit cost. [IAS
19(2011).75-76]:
Financial assumptions must be based on market expectations at the end of the reporting period
[IAS 19(2011).80] Mortality assumptions are determined by reference to the best estimate of the
mortality of plan members during and after employment [IAS 19(2011).81] The discount rate
used is determined by reference to market yields at the end of the reporting period on high-
quality corporate bonds, or where there is no deep market in such bonds, by reference to market
yields on government bonds. Currencies and terms of bond yields used must be consistent with
the currency and estimated term of the obligation being discounted [IAS 19(2011).83]
Assumptions about expected salaries and benefits reflect the terms of the plan, future salary
increases, any limits on the employer's share of the cost, contributions from employees or third
parties*, and estimated future changes in state benefits that impact benefits payable [IAS
19(2011).87] Medical cost assumptions incorporate future changes resulting from inflation and
specific changes in medical costs [IAS 19(2011).96] Updated actuarial assumptions must be used
to determine the current service cost and net interest for the remainder of the annual reporting
period after a plan amendment, curtailment, or settlement when an entity remeasures its net
defined benefit liability (asset) [IAS 19(2011).122A]*
* Added by Plan Amendment, Curtailment, or Settlement (Amendments to IAS 19) in February
2018. The amendments are effective for annual periods beginning on or after 1 January 2019.

Past service costs

Past service cost is the term used to describe the change in a defined benefit obligation for
employee service in prior periods, arising as a result of changes to plan arrangements in the
current period (i.e. plan amendments introducing or changing benefits payable, or curtailments
which significantly reduce the number of covered employees).
Past service costs may be either positive (where benefits are introduced or improved) or negative
(where existing benefits are reduced). Past service cost is recognized as an expense at the earlier
of the date when a plan amendment or curtailment occurs and the date when an entity recognizes
any termination benefits, or related restructuring costs under IAS 37 Provisions, Contingent
Liabilities, and Contingent Assets. [IAS 19(2011).103]
Gains or losses on the settlement of a defined benefit plan are recognized when the settlement
occurs. [IAS 19(2011).110]
Before past service costs are determined, or a gain or loss on the settlement is recognized, the net
defined benefit liability or asset is required to be remeasured, however, an entity is not required
to distinguish between past service costs resulting from curtailments and gains and losses on the
settlement where these transactions occur together. [IAS 19(2011).99-100]
Recognition of defined benefit costs
The components of defined benefit cost are recognized as follows: [IAS 19(2011).120-130]

Component Recognition
Service cost attributable to the current and past periods Profit or loss
Net interest on the net defined benefit liability or asset
determined using the discount rate at the beginning of the period Profit or loss
Remeasurements of the net defined benefit liability or asset, comprising:
actuarial gains and losses Other comprehensive
income (Not reclassified to profit or loss in a subsequent
period)
return on plan assets
some changes in the effect of the asset ceiling
Other guidance

IAS 19 also guides about:

when an entity should recognize a reimbursement of expenditure to settle a defined benefit
obligation [IAS 19(2011).116-119] when it is appropriate to offset an asset relating to one plan
against a liability relating to another plan [IAS 19(2011).131-132] accounting for multi-employer
plans by individual employers [IAS 19(2011).32-39] defined benefit plans sharing risks between
entities under common control [IAS 19.40-42] entities participating in state plans [IAS
19(2011).43-45] insurance premiums paid to fund post-employment benefit plans [IAS
19(2011).46-49]
Disclosures about defined benefit plans
IAS 19(2011) sets the following disclosure objectives about defined benefit plans [IAS
19(2011).135]:
an explanation of the characteristics of an entity's defined benefit plans, and the identification
and explanation of the associated risk of the amounts arising in the financial statements from
defined benefit plan a description of how defined benefit plans may affect the amount, timing,
and uncertainty of the entity's future cash flows.
Extensive specific disclosures about meeting each of the above objectives are specified, e.g. a
reconciliation from the opening balance to the closing balance of the net defined benefit liability
or asset, disaggregation of the fair value of plan assets into classes, and sensitivity analysis of
each significant actuarial assumption. [IAS 19(2011).136-147]
Additional disclosures are required about multi-employer plans and defined benefit plans sharing
risk between entities under common control. [IAS 19(2011).148-150].
Other long-term benefits
IAS 19 (2011) prescribes a modified application of the post-employment benefit model described
above for other long-term employee benefits: [IAS 19(2011).153-154]
the recognition and measurement of a surplus or deficit in another long-term employee benefit
plan are consistent with the requirements outlined above service cost, net interest, and
remeasurements are all recognized in profit or loss (unless recognized in the cost of an asset
under another IFRS), i.e. when compared to accounting for defined benefit plans, the effects of
remeasurements are not recognized in other comprehensive income.
Termination benefits
A termination benefit liability is recognized at the earlier of the following dates: [IAS 19.165-
168]
- when the substance can no longer withdraw the offer of those benefits - extra guidance
is given on when this date occurs in relation to an employee's choice to accept an offer of
benefits on termination, and as a result of an entity's choice to terminate an employee's
employment.
- when the substance recognizes costs for a rebuilding beneath IAS 37 Provisions,
Contingent Liabilities, and Contingent Assets which includes the payment of termination
benefits.
Termination benefits are measured in understanding with the nature of representative advantage,
i.e. as an upgrade of other post-employment benefits or something else as a short-term worker
advantage or other long-term worker advantages. [IAS 19(2011).169]