Share this content

IFRS 16 Treatment of Leasehold Land & Buildings?

Didn't find your answer?

If a company purchased a leasehold building (say 150 year lease) as a one-off payment some years ago, however there are no regular payments for the leasehold, does this fall under the scope of IFRS 16 or should it continue to be accounted for under IAS 16 (PP&E)?

My instinct is that, as it is 'in-substance' the company's asset - all they need to do is extend the lease, it should be accounted for under IAS 16 as PP&E.  In addition as there are no regular payments, I believe (but may be wrong) IFRS 16 will calculate a nil right-of-use asset and lease liability, so if the asset does need to be accounted for under IFRS 16, where would the asset be written off to?

Replies (5)

Please login or register to join the discussion.

avatar
By johnt27
25th Oct 2021 12:12

I think this falls under IFRS 16, albeit you are correct that the value of the lease payments, given they are zero, will come back to zero. Depreciation would be across the UEL of the building, whatever your assessment of this may be.

Thanks (0)
avatar
By paul.benny
25th Oct 2021 12:15

IFRS 16 appears to be silent on long leases. I’ve seen guidance that says that they are in scope, without really justifiying it or explaining how you then account for it.

You could, I suppose, take the NPV of the total amounts payable, including the initial consideration – which, surprise, surprise equals the initial consideration. And then faff around prepaying 149/150th and creating a corresponding creditor. And faff around even more with notional interest.

My non-authoritative view is that long leases such as you describe are outside the scope of IFRS16.

Thanks (0)
avatar
By johnt27
25th Oct 2021 12:28

Deloitte make reference to leasehold land and buildings in their guidance

https://www2.deloitte.com/content/dam/Deloitte/sg/Documents/audit/sea-au...

Thanks (0)
Replying to johnt27:
avatar
By paul.benny
25th Oct 2021 13:30

They do. But the reference given (BC78) is no longer present in the latest version of the standard.

Thanks (0)
Replying to paul.benny:
avatar
By johnt27
25th Oct 2021 13:49

Indeed, but relates to long leases of land, not leasehold land and buildings, which is referred to seperately in the guidance and cross-referred to B56

Thanks (0)
Share this content