Insights & Expertise
Expert insights, guides, and best practices for lease accounting and similar topics.
Featured Articles & Guides
IFRS 16 Leases: Complete Guide to Lessee and Lessor Accounting
IFRS 16 Leases requires lessees to recognise most leases on the balance sheet as a lease liability and right-of-use asset, whilst lessors classify leases as either finance or operating leases. This comprehensive guide covers lease identification, measurement, subsequent accounting, and modifications for both lessees and lessors under IFRS 16.
IFRS 15 Revenue - Complete Guide
Under IFRS 15, revenue is recognised in five steps: when control of a good or service passes to the customer, at the amount expected, not the contract price.
IFRS 2 Share-based Payment: Complete Guide with Journal Entries
Equity-settled awards are fixed at grant date fair value; cash-settled awards are remeasured each period. Market conditions are expensed even if never met.
Sign up to our newsletter
Get the latest insights and updates delivered straight to your inbox.
Recent Articles
Principal vs Agent Under IFRS 15: Gross or Net Revenue?
Under IFRS 15, an entity is a principal if it controls the specified good or service before it transfers to the customer, and recognises revenue gross. If it only arranges for another party to provide it, it is an agent and recognises only its fee or commission. Profit is unchanged; revenue, cost of sales and gross margin are not.
How to Calculate Goodwill Under IFRS 3 (With Examples)
Goodwill arises when an acquirer pays more for a subsidiary than the fair value of the identifiable net assets it acquires. Under IFRS 3 it is measured as the consideration transferred, plus the non-controlling interest, plus the fair value of any previously held interest, less the acquisition-date fair value of the identifiable net assets acquired. Each input has its own measurement rules: acquisition costs are excluded, contingent consideration is included at fair value, the non-controlling interest can be measured at fair value or at its share of net assets, and deferred tax on fair value adjustments reduces net assets and increases goodwill.
Acquisition and Disposal of Subsidiaries in the Cash Flow Statement
Under IAS 7, obtaining or losing control of a subsidiary is presented as a single line in investing activities: the cash consideration paid or received, net of the subsidiary's cash and cash equivalents acquired or disposed of. Acquisitions and disposals are never offset against each other. Every asset and liability that came in or went out with the subsidiary is already inside that line, so it must be removed from every other reconciliation, and the gain on disposal, acquisition costs, deferred consideration and any retained interest each need their own treatment.
Current vs Non-Current Lease Liability (IFRS 16): How to Split It, With an Example
The current portion of a lease liability is the part of the carrying amount settled within twelve months of the reporting date: the capital element of the payments due in that period, plus interest already accrued. The non-current portion is the balance left on the amortisation schedule after the last payment due within those twelve months.
Lease Payments in the Cash Flow Statement - IFRS 16
Lease principal is a financing outflow, interest follows the IAS 7 policy for interest paid, and short-term, low-value and variable payments are operating.
Compound Financial Instruments: Splitting Debt and Equity Under IAS 32 (With Examples)
A compound financial instrument contains both a financial liability and an equity instrument, such as a bond the holder can convert into a fixed number of shares. IAS 32 requires the issuer to measure the liability at fair value first and recognise the residual as equity.
Deferred Tax Explained: A Complete Guide to IAS 12 (With Examples)
Deferred tax is the tax on the difference between an item's carrying amount and its tax base. It aligns the tax charge with reported profit when accounting and tax recognise income and expenses in different periods.
Tax Rate Reconciliation: How to Prepare It Under IAS 12 (With Example)
The tax rate reconciliation explains why the income tax expense differs from profit before tax multiplied by the statutory rate. Only permanent differences, unrecognised deferred tax, prior year adjustments, rate changes and similar items appear in it.
How to Account for Leases as a Lessor - IFRS 16
A lessor first classifies each lease as finance or operating. A finance lessor derecognises the asset and recognises a net investment in the lease, earning finance income at the implicit rate. An operating lessor keeps the asset, depreciates it and recognises lease income on a straight-line basis.
Determining if a Company is a Subsidiary - IFRS 10
A company is a subsidiary when another entity controls it, and control under IFRS 10 does not depend exclusively on owning more than half of the shares. An investor controls an investee only when it has power over the relevant activities, exposure to variable returns, and the ability to use that power to affect those returns. A 46% shareholder can control a company with dispersed shareholders, a 58% shareholder can lose control to a substantive option held by another party, and an investor with no shares at all can control an entity through contractual rights.
Consolidating Foreign Subsidiaries Under IFRS: IAS 21 Translation Guide
Consolidating a foreign subsidiary under IFRS is a two-stage exercise: translate the subsidiary's results and financial position from its functional currency into the group's presentation currency, then consolidate the translated figures in the normal way. IAS 21 sets three translation rules - assets and liabilities at the closing rate, income and expenses at the rates on the transaction dates, and every resulting difference to other comprehensive income, accumulated in the foreign currency translation reserve. Goodwill and fair value adjustments are treated as assets of the foreign operation and retranslated at the closing rate, the reserve is split with non-controlling interests, and it is recycled to profit or loss only on disposal.
Enterprise Value, Company Value and Equity Value Explained
Enterprise value is the operating business alone, discounted at WACC. Add non-operational assets at market value to reach company value, then deduct the market value of debt and preference shares to reach equity value.
IFRS 15 Contract Costs: Costs to Obtain and Costs to Fulfil
IFRS 15 capitalises two categories of cost: incremental costs of obtaining a contract, and costs to fulfil one that fall outside every other standard. Both are amortised as the related goods or services transfer and tested under a bespoke impairment model.
Lease Accounting Software: Comparison, Cost and Features
Published rate cards start at $99 per month for ten leases, but most vendors quote only on request. A comparison of what each system costs, the five calculations to test before buying, and the lease portfolios that still do not need software.
Deferred Tax on Leases Under IFRS 16 - IAS 12 Tax Bases
Deferred tax on leases arises because the right-of-use asset and lease liability both have a nil tax base, creating equal differences that then diverge.
Contract Assets and Contract Liabilities - IFRS 15
A contract asset is a conditional right to consideration and a receivable an unconditional one. A contract liability arises when payment is made or due.
Incremental Borrowing Rate (IFRS 16): How to Determine It, With a Practical Example
The incremental borrowing rate is the rate a lessee would pay to borrow, over a similar term and with similar security, the funds needed to obtain an asset of similar value to the right-of-use asset. It is built up from a currency- and term-matched reference rate, the lessee's own credit spread, and an adjustment for the security the lease provides.
Indirect Method Cash Flow Statement: Steps and Example
Profit before tax is adjusted for depreciation, disposal gains, provisions, deferred tax and working capital to reach cash generated from operations.
Foreign Currency Leases Under IFRS 16: Accounting and Examples
A foreign currency lease is one whose payments are denominated in a currency other than the lessee's functional currency, and it is accounted for under two standards at once: IFRS 16 measures the lease, IAS 21 translates it. That division produces the defining feature of these leases — the lease liability is a monetary item retranslated at every closing rate, while the right-of-use asset is non-monetary and stays frozen at the commencement date rate. The result is an exchange difference in profit or loss that has no matching movement in the asset, and a total charge over the lease term that always equals the functional currency cash paid.
Consolidated Cash Flow Statements - Detailed Explanation
A consolidated statement of cash flows presents the cash flows of a parent and its subsidiaries as though the group were a single entity, reporting only the cash that moved between the group and parties outside it. It is prepared in exactly the same way as a single-entity statement; the difference is what you feed into it: consolidated balances, after consolidation, which move for reasons that have nothing to do with cash. This guide covers the group-specific adjustments, the extra lines every balance sheet reconciliation needs, acquisitions and disposals of subsidiaries and the cash they carry with them, non-controlling interests, foreign operations and the foreign currency translation reserve, and the disclosures IAS 7 requires from a group.
Foreign Exchange Differences Under IAS 21: Rules and Examples
Foreign exchange differences arise under IAS 21 because a transaction denominated in a foreign currency is measured on one date but settled on another, and the exchange rate moves in between. The standard resolves this with three rules: record the transaction at the spot rate on the transaction date, retranslate monetary items at the closing rate every reporting date, and leave non-monetary items at their historical rate unless they are remeasured. Everything else — realised versus unrealised differences, hedged positions, foreign operations — follows from those three rules.
Leases in a Business Combination: IFRS 3 and IFRS 16 (With Journal Entries)
When an acquirer obtains control of a business, the acquiree's leases are not simply carried across at their existing book values. IFRS 3 requires the acquirer to remeasure each lease as if it were a new lease at acquisition date, adjust the right-of-use asset for off-market terms, and carry the difference through goodwill. This article explains the acquisition-date measurement rules for both lessee and lessor leases, with examples and the consolidation journals required in subsequent periods.
IFRS 18 Transition Guide: How to Prepare for 2027 Adoption
IFRS 18 transition is the process of moving financial statement presentation and disclosure from IAS 1 to IFRS 18 Presentation and Disclosure in Financial Statements, which is effective for annual reporting periods beginning on or after 1 January 2027. Because IFRS 18 is applied retrospectively, the comparative period must be restated on the new basis, meaning entities with a 31 December year-end are already operating inside the comparative year that will be re-presented in their first IFRS 18 financial statements.
IFRS 16 Disclosures: Lessee Presentation and Note Requirements
IFRS 16 disclosures require lessees to present right-of-use assets and lease liabilities either separately or within existing line items, and to provide detailed note disclosures covering depreciation, interest, short-term and low-value lease expenses, variable payments, and a maturity analysis of lease liabilities, so that users of the financial statements can assess the effect of leasing on the entity's financial position, performance and cash flows.
Purchase Options in Leases Explained - IFRS 16 & ASC 842
A purchase option gives a lessee the right, but not the obligation, to buy the underlying asset during or at the end of the lease term, typically at a stated price, a formula-based price, or fair value at the exercise date. On its own, a purchase option is a small contractual clause—but whether the lessee is reasonably certain to exercise it has an outsized effect on lease accounting under both IFRS 16 and ASC 842.
Cash Flow Statement - Direct Method Guide (With Examples)
The direct method cash flow statement reports major classes of gross cash receipts and gross cash payments from operating activities, providing greater transparency than the indirect method. This guide works through a complete IAS 7 example: cash receipts from customers, cash paid to suppliers and employees, VAT and sales tax, capitalised interest, tax and dividends, the reconciliation of liabilities arising from financing activities, consolidated groups, and the disclosures both IAS 7 and ASC 230 require.
Foreign Exchange Transactions in Cash Flow Statements Explained
Foreign exchange gains and losses require specific adjustments in the cash flow statement to correctly reflect cash flows at the exchange rates on the date of the transaction. Both realised and unrealised foreign exchange movements must be adjusted for, each for distinct reasons, to ensure cash and cash equivalents reconcile accurately between reporting periods. The principles are substantially the same under both IFRS (IAS 7) and US GAAP (ASC 230).
Decommissioning and Rehabilitation Provisions in Leases
How decommissioning and restoration costs are capitalised into the right-of-use asset at commencement, and how IFRIC 1 handles later changes in the estimate.
Operating Leases Explained (Lessees) - ASC 842
Operating vs Finance Classification • Lease Liability & ROU Asset • Straight-Line Lease Expense • Practical Example with Journals • Modifications • Presentation
Cash Flow Statement Adjustments: A Line-by-Line List
Profit is reconciled to cash generated from operations by adding back non-cash items, deducting disposal gains and reclassifying realised foreign exchange.
Right-of-Use Asset under IFRS 16: Recognition, Measurement and Examples
A right-of-use asset represents a lessee's right to use an underlying asset for the lease term under IFRS 16. The right-of-use asset is initially measured at cost, comprising the lease liability, initial direct costs, prepaid lease payments, and restoration obligations, and is subsequently depreciated over the shorter of the lease term or the useful life of the underlying asset if ownership transfers.
IFRS 18 Aggregation and Disaggregation Requirements - Grouping Financial Information
IFRS 18 aggregation and disaggregation requirements establish principles for grouping financial information based on shared and dissimilar characteristics. Entities aggregate assets, liabilities, equity, income, expenses and cash flows with similar characteristics whilst disaggregating items with dissimilar characteristics to provide useful structured summaries in primary financial statements and detailed information in the notes.
IFRS 18 Analysis of Operating Expenses Explained With Examples
IFRS 18 requires entities to present an analysis of operating expenses on the face of the income statement using the by-nature method, by-function method, or a mixed presentation approach. The standard mandates that entities select the method providing the most useful structured summary of operating expenses, with specific disclosure requirements for nature expenses when functional presentation is used.
Three Key Changes to the Cash Flow Statement Under IFRS 18
IFRS 18 eliminates classification options for interest and dividend cash flows in IAS 7, requiring entities without specified main business activities to classify interest paid and dividends paid as financing activities, whilst interest received and dividends received must be classified as investing activities. The amendments also mandate operating profit or loss as the starting point for the indirect method.
IFRS 18 Operating, Investing and Financing Categories
Understand IFRS 18's new profit or loss categories: operating for core business, investing for returns on assets, and financing for funding activities.
Residual Value Guarantees in Leases - IFRS 16 Treatment
Lessees include only the amount expected to be paid under a residual value guarantee in lease payments. For lessors on the other hand, the unguaranteed residuals sit in the net investment.
Lease Identification under IFRS 16: How to Determine Whether a Contract Contains a Lease
A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. This article breaks down each element of that definition and explains how judgement is applied in practice under IFRS 16.
Accounting for Lease Terminations and Partial Terminations under IFRS 16
Lease terminations require careful accounting under IFRS 16, as they involve the derecognition of existing lease balances and recognition of any resulting gains or losses. Partial terminations add further complexity by requiring proportional adjustments to both the lease liability and the right-of-use asset.
Direct Financing Leases Explained (With Examples) – ASC 842
Under ASC 842, a direct financing lease is a lease (from the lessor’s perspective) where the lessor effectively acts as a financier rather than a manufacturer or dealer. In a direct financing lease, the lessor transfers substantially all the risks and rewards of the asset to the lessee, but does not recognize any selling profit immediately.
Finance Lease vs Operating Lease - ASC 842 Classification
Finance leases calculate interest and depreciation independently, whereas operating leases disclose a single straight-line cost. Both stay on the balance sheet.
Lease Term under IFRS 16: Determining the Lease Term with Examples
The lease term is the non-cancellable period of a lease, together with periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option, and periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.
Sales-Type Leases Accounting Explained (With Example) - ASC 842
A sales-type lease is a finance lease in which the lessor recognises selling profit or loss at lease commencement, similar to a manufacturer or dealer lessor under IFRS 16. It typically involves transferring substantially all benefits and risks of the underlying asset.
The 7 Most Common Cash Flow Statement Mistakes
A cash flow statement that doesn’t balance is never the result of bad luck or complexity. It is always caused by a breakdown in method. This article sets out seven common reasons why cash flow statements fail to balance and explains a two-phase approach to compiling a cash flow statement.
Subleases Explained (With Examples) - ASC 842 Accounting
The US GAAP Leases Standard, ASC 842, requires intermediate lessors to apply both lessee and lessor accounting models when entering into subleases. This article explains sublease classification, measurement, and key differences from IFRS 16, with practical examples and guidance.
Lease Initial Direct Costs Explained – IFRS 16
Initial direct costs are incremental costs of obtaining a lease that would not have been incurred if the lease had not been obtained. These costs affect the measurement of right-of-use assets, lease investments, and the timing of expense or income recognition for both lessees and lessors.
Accounting For Short-Term and Low-Value Leases (Straight-Line Method) - IFRS 16
IFRS 16 offers lessees a recognition exemption to account for short-term or low-value leases on a straight-line expense basis, rather than recognising a lease liability and right-of-use asset. This article explains the exemption, eligibility criteria, straight-line accounting, and lease modifications.
Accounting for Rent-to-Own (or Rent-to-Buy) Arrangements - IFRS 16
Rent-to-own or rent-to-buy arrangements require careful analysis under IFRS 16 to determine whether they represent a lease, a purchase in substance, or a combination of components. The accounting outcome depends on the economic substance of the arrangement rather than its legal form.
IFRS 18 Management-Defined Performance Measures Simplified
Management-Defined Performance Measures (MPMs) are non-IFRS metrics used by management, outside the financial statements, to explain the entity’s financial performance. They must be clearly defined, reconciled to IFRS figures, and consistently disclosed, giving users better insight into how management evaluates and runs the business.
How to Calculate Lease Liability in IFRS 16 (With Examples)
A technical guide to initial lease liability measurement under IFRS 16: which payments qualify, whether VAT belongs in the payment, how the lease term is determined, choosing between the IRIL and the IBR, and a worked calculation in both arrears and advance.
IFRS 18 vs. IAS 1: Summary of Key Changes
IFRS 18 introduces management performance measures (MPMs), which are non-GAAP metrics that management uses to explain financial performance, and requires these to be disclosed with clear definitions, reconciliation to IFRS measures, and consistent labelling. It also mandates more detailed and structured disclosures about income, expenses, and performance measures, improving transparency and comparability across reporting periods and entities.
IFRS 16 vs ASC 842 - Single Model vs Dual Model Leases
IFRS 16 puts every lease on one lessee model; ASC 842 keeps finance and operating apart. More differences include low-value leases, CPI remeasurement and subleases.
Manufacturer or Dealer Lessors Explained - IFRS 16
A manufacturer or dealer lessor is an entity that manufactures or sells assets in the normal course of business and also offers those assets under lease arrangements. Unlike banks or other financial lessors who primarily earn interest income, manufacturer or dealer lessors generate profit from both the sale of the asset and the financing element of the lease.
Sale and Leaseback Transactions Explained - IFRS 16
Sale and leaseback transactions occur when an entity sells an asset and immediately leases it back. IFRS 16 contains specific accounting guidance for sale and leaseback transactions. The standard requires entities to assess whether the sale portion of the transaction qualifies as a sale under IFRS 15. This assessment drives the accounting treatment for both the seller-lessee and the buyer-lessor.
Non-Lease Components Explained With Examples - IFRS 16
A non-lease component is an activity that transfers a good or service to the lessee, but does not relate to the right to control the use of an identified asset. Many lease contracts include not just the right to use an asset but also additional goods or services—such as maintenance, cleaning, or administrative support. These elements must be evaluated carefully to determine whether they constitute lease or non-lease components, or perhaps no component at all.
Subleases Explained (With Examples) - IFRS 16 Accounting
A sublease occurs when a lessee (the intermediate lessor) grants a lease of the right-of-use (ROU) asset obtained under an original lease to another party (the sublessee). Importantly, the intermediate lessor continues to account for the original lease with the head lessor and also accounts for the sublease with the sublessee.
Leasehold Improvements: IAS 16 Accounting and Useful Life
Leasehold improvements are IAS 16 assets, not part of the IFRS 16 right-of-use asset. How to capitalise them and set depreciation against the lease term.
Variable Lease Payments Guide - IFRS 16: Definition, Examples, and Accounting Treatment
Variable lease payments are a key area of complexity under IFRS 16. This article explores their types, examples, and the appropriate accounting treatment for both lessees and lessors.
Consolidation of Intercompany Leases Guide - IFRS 16 (Including Journal Entries)
An intercompany lease is a lease between entities within the same group. These transaction should be eliminated in the financial records of the group, as an accounting entity (the group) cannot have transactions with itself. This concept has critical implications during consolidation.
IFRS 16 Lease Modifications: Accounting, Calculations and Journal Entries
This article explains how lease modifications impact lessees and lessors under IFRS 16, including remeasurements, discount rates, journal entries and ohter accounting treatments.
Tax Treatment of Leases Under IFRS 16 - South Africa
This article explains the different tax consequences for leases, highlighting the distinctions between ICAs and normal rental agreements under South African VAT and income tax law.
Lease Incentives Guide - IFRS 16 - Examples & Journal Entries
Lease incentives, often provided by lessors to lessees, impact both the accounting treatment of leases and financial statements under IFRS 16. This article explores the definition, treatment, and implications of lease incentives for both lessees and lessors.
Finance Lease vs Operating Lease - IFRS 16 Comparison
The risks-and-rewards test that decides classification, plus how each lease type hits the balance sheet and income statement, side by side with journals.
Interest Rate Implicit in the Lease (IFRS 16 & ASC 842): Calculation, Formula and Example
The interest rate implicit in the lease is the rate that reflects the lessor’s return on a lease. One can think of it as the lessor's internal rate of return on the lease. This rate is used to discount lease payments to a present value, in order to recognise a lease liability