Step 3: Enter lease terms on the contract

Classification

This contract contains a lease according to IFRS 16:Defines that this contract qualifies for IFRS 16 reporting.

Lease type

Operating lease and Finance lease: A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset at the end of the lease term. Otherwise a lease is classified as an operating lease. Note that both variants are equally important for IFRS 16 reporting. When registering a sublease structure, the financial lease type will be selected automatically.

Options

Before you get started!
When registering an IFRS 16 contract, you must consider if the contract applies to certain "exemptions" or not. Note that you must also report IFRS 16 contracts that are part of these exemptions. Read more about the exemptions under https://ifrscommunity.com/knowledge-base/scope-of-ifrs-16/.

• Use exemption for short term leases: Short-term leases with lease term of 12 months or less given the lease has no purchase option are one of the exemptions. The selection must be made on a class-by-class basis, e.g. the category of the underlying assets. If your leasing contract fulfills exemption conditions, tick the checkbox.

• Use exemption for low value assets: As lessee you may not apply to IFRS 16 requirements for leases if the underlying asset is of low-value (5 000 USD per January 2022). Note that the value of the asset as new is assessed. Also, the asset cannot be highly dependent on or highly interrelated with other assets. There are also some other rules as described in the link above. If your leasing contract fulfills exemption conditions, tick the checkbox.

This contract is part of a sublease structure: If the contract relates to an asset that is either a headlease of a sublease in a structure (with headlease), tick this checkbox. Then, select under Sublease if this is the Headlease or a Sublease. For subleases, select also the related Headlease. Note that you must register the headlease first. Once done, you can register its subleases. Read more here.

Lessee is reasonably certain to acquire title of ownership: This is usually the case for finance leases and means that the lessor transfers ownership of the underlying asset to the lessee by the end of the lease term. As a consequence, the depreciation period will last from commencement date to the end of the useful life of the asset. Therefore, you must now also enter the Economic lifetime. Also, the type of lease should often be Finance lease. Read more here.

Recognize pre-assessed lease: This is an option for existing leases that are already assessed where the lease liability and right of use shall be recognized from the balance sheet. Use this option when migrating to CC5 from other IFRS 16 reporting systems. When selecting this option, the button Add assessment is displayed, and you can enter the lease liability opening balance and the right-of-use opening balance at recognition date. Read more here.

Lease term

Here, you enter the various lease terms that are defined in the contract.

Commencement date: Pre-entered with the Start date of the contract. The commencement date of the lease is defined as the date on which the lessor makes an underlying asset available for use by the lessee.

Non-cancellable term: Pre-entered with the Initial period, but can be overwritten.

Extension period: For contracts with extension options. All active extension options (Extension exercised is ticked) are pre-entered. You can overwrite the value if your extension considerations related to IFRS 16 standard are not identical with the choices above.

Economic lifetime: You can use this field to highlight situations where the economic lifetime (depreciation period) of the asset is shorter than the lease period. You must enter this field if the asset shall be acquired after the lease period (remember to tick Lessee is reasonably certain to acquire title of ownership), and the asset shall be depreciated during the agreed on leasing period. In all other situations, leave the field empty.

Lease term: Combination of fields Non-cancellable term + Extension option.

Depreciation term: Combination of fields Non-cancellable term + Extension option unless requirements for economic lifetime are fulfilled. In this case, the Economic lifetime value is used.

End of lease: Combination of fields Non-cancellable term + Extension option.

Financial assessments

Accounting currency: The accounting currency for this company as defined in the system settings for contracts.

Discount rate: The interest rate as defined in the contract. If it is not defined, use the lessee's incremental borrowing rate.

Initial direct costs: If there are any direct costs related to this lease, you can enter them here.

Restoration costs: If the contract states that you must pay any restoration costs after the lease period, you can enter them here.

Measurements

Add initial assessment: If the contract has not been assessed before, click here for the initial assessment. Note that you must have entered all other fields for IFRS 16 registration before and added a payment schedule with IFRS 16 classification. Complete Control will start calculating liability and right of use for the lease period. And you can view and download the report under View detailed calculations.
Read also Step 4: Add initial assessment

Add impairment: If your company no longer expects to recover the cost of the lease through operation, or disposal, the right-of-use asset can be impaired. This is only possible after initial assessment. See also How to impair leased assets.

Add reassessment: Reassessments can be necessary if you made changes to the lease payments to an ongoing contract. Read also How to handle reassessment and modifications.

Now, the only thing remaining is creating the inital assessment. See Step 4: Add initial assessment.