Subsequent measurement of the right-of-use asset

Learning objectives

• Determine the depreciation period: the useful life of the underlying asset if ownership transfers or a purchase option is reasonably certain to be exercised, otherwise the shorter of the useful life and the lease term.L1, L2
• Calculate the depreciation charge of the right-of-use asset and its carrying amount, adjusted for remeasurements of the lease liability.L2, L3
• Identify the other applicable models: impairment testing under IAS 36, the fair value model of IAS 40 for an investment property, the revaluation model of IAS 16 for a revalued class.L2, L3

Normative references

• IFRS 16 §29After the commencement date, the lessee measures the right-of-use asset applying a cost model, unless it applies one of the models in paragraphs 34 and 35.
• IFRS 16 §30Under the cost model, the right-of-use asset is measured at cost less accumulated depreciation and accumulated impairment losses, and adjusted for any remeasurement of the lease liability specified in paragraph 36(c).
• IFRS 16 §31The lessee applies the depreciation requirements in IAS 16 in depreciating the right-of-use asset, subject to paragraph 32.
• IFRS 16 §32If the lease transfers ownership of the underlying asset to the lessee by the end of the lease term or if the cost of the right-of-use asset reflects the exercise of a purchase option, depreciation runs from the commencement date to the end of the useful life of the underlying asset. Otherwise, it runs to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.
• IFRS 16 §33The lessee applies IAS 36 to determine whether the right-of-use asset is impaired and to account for any impairment loss identified.
• IFRS 16 §34If the lessee applies the fair value model in IAS 40 to its investment property, it also applies that model to right-of-use assets that meet the definition of investment property.
• IFRS 16 §35If right-of-use assets relate to a class of property, plant and equipment to which the lessee applies the revaluation model in IAS 16, it may elect to apply that model to all of the right-of-use assets relating to that class.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

18 questions

• True or false: after the commencement date, the lessee measures the right-of-use asset under the cost model, unless it applies one of the other models provided for by IFRS 16.L2
• True or false: when the lease transfers ownership of the underlying asset to the lessee at the end of the lease, the right-of-use asset is depreciated over the lease term, even if the useful life of the asset is longer.L1
• Orlinde measures its right-of-use assets under the cost model. Which requirements does it apply to depreciate them?L1
• Pradel leases a hydraulic excavator for a lease term of 6 years. The excavator's useful life is 10 years. The lease does not transfer ownership and contains no purchase option. Over what period is the right-of-use asset depreciated?L2
• Ardoisine leases a rotary printing press for 5 years; the lease provides for the automatic transfer of ownership of the press to Ardoisine at the end of the lease. The useful life of the press is estimated at 8 years. Over what period is the right-of-use asset depreciated from the commencement date?L2
• Quintal measures its right-of-use assets under the cost model. Which items enter the carrying amount of a right-of-use asset at the reporting date? (several answers)L2
• The Vireo chain closes one of its leased stores, whose lease still runs for 4 years, and identifies an indication of impairment of the related right-of-use asset. What must it do?L2
• The Solvane group measures all its investment property under the IAS 40 fair value model. It leases an office building for 15 years, which it fully sublets to third parties; it is established (given) that this right-of-use asset meets the definition of investment property. How does Solvane measure this right-of-use asset after the commencement date?L3
• Belrive applies the IAS 16 revaluation model to its Land and buildings class and the cost model to its vehicles. It holds three right-of-use assets relating to warehouses (Land and buildings class) and two right-of-use assets relating to trucks. Which policy does IFRS 16 allow it?L3
• Ostrade recognised a right-of-use asset for a forklift truck at a cost of {rou_cost}. The lease term is {lease_term} years and the useful life of the forklift is {useful_life} years. The lease does not transfer ownership and contains no purchase option. Ostrade uses the straight-line method (method chosen by the entity). Compute the annual depreciation charge and the carrying amount of the right-of-use asset at the end of the first year.L2
• The Galmine laboratory leases a spectrometer for a lease term of {lease_term} years, with a purchase option at the end of the lease that it is reasonably certain to exercise: the exercise price was included in the lease liability and the cost of the right-of-use asset, i.e. {rou_cost}, therefore reflects the exercise of the option. The useful life of the spectrometer is {useful_life} years. Straight-line depreciation (method chosen). Compute the annual depreciation charge and the carrying amount at the end of the second year.L2
• Pellane, whose reporting period ends on 31 December, leases computer servers with a commencement date of 1 April 20X1. Cost of the right-of-use asset: {rou_cost}; lease term: {lease_term_months} months; useful life of the servers: {useful_life} years. No transfer of ownership and no purchase option. Pellane depreciates on a straight-line basis, pro rata to the months of use (method chosen). Compute the 20X1 depreciation charge and the carrying amount at 31 December 20X1.L3
• Tavelin depreciates on a straight-line basis over the lease term ({lease_term} years, shorter than the useful life) a right-of-use asset with a cost of {rou_cost}. After {years_elapsed} years of depreciation, the lease liability is remeasured upwards by {remeasurement_increase} (given amount, resulting from a revision of the lease payments). Case assumption: Tavelin allocates the new carrying amount on a straight-line basis over the 3 remaining years. Compute the carrying amount of the right-of-use asset after the adjustment and the depreciation charge for year 3.L3
• The Corbelle firm leases premises for a lease term of {lease_term} years, shorter than their useful life; the right-of-use asset, with a cost of {rou_cost}, is depreciated on a straight-line basis over that term. After {years_elapsed} years, a decrease in future lease payments leads to a reduction of the lease liability by {remeasurement_decrease} (given amount). The firm assumes a straight-line allocation of the new balance over the remaining term. Determine the adjusted carrying amount of the right-of-use asset and the depreciation charge for the fourth year.L3
• Alverine recognised a right-of-use asset for a production photocopier at {rou_cost}. Lease term: {lease_term} years; useful life of the photocopier: {useful_life} years; no transfer of ownership and no purchase option. Straight-line depreciation (method chosen). Record the depreciation entry for the first year.L2
• The Brunelle shipyard leases a harbour crane. The lease, for {lease_term} years, provides that ownership of the crane will transfer to Brunelle at the end of the lease. The right-of-use asset has a cost of {rou_cost}; the useful life of the crane is {useful_life} years. Brunelle depreciates on a straight-line basis (method chosen). Record the annual depreciation charge.L3
• The consolidation department of the Arvenne group is preparing a memo on the measurement of right-of-use assets after the commencement date. Which statements are correct? (several answers)L3
• For 20X1, the accountant of Calderis recorded three entries on a lease (opening lease liability 220,000, rate 5%, lease payment of 52,000 paid on 31 December): (1) depreciation of the right-of-use asset of 40,000; (2) debit interest expense, credit lease liability 11,000; (3) debit lease expense, credit cash 52,000. Which entry is wrong?L3