Leases in which the acquiree is the lessee

Learning objectives

• Calculate the lease liability at the present value of the remaining lease payments, using the rate given in the case, and then the right-of-use asset adjusted for favourable or unfavourable lease terms.L3, L4
• Identify the contracts for which recognition of a right-of-use asset is not required (lease term ending within 12 months, low-value underlying asset).L3, L4

Normative references

• IFRS 3 §28AWhen the acquiree is a lessee, the acquirer recognises a right-of-use asset and a lease liability for the leases identified in accordance with IFRS 16, but is not required to do so for leases whose lease term ends within 12 months of the acquisition date or for which the underlying asset is of low value.
• IFRS 3 §28BThe lease liability is measured at the acquisition date at the present value of the remaining lease payments (as defined in IFRS 16), as if the acquired lease were a new lease at that date; the right-of-use asset is measured at the same amount as the lease liability, adjusted to reflect favourable or unfavourable terms of the lease when compared with market terms. Para. 28B does not itself set the discount rate (cross-reference to IFRS 16): in a case, it is given data.

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

1 question

• Loing SA, the acquiree, is the lessee under a lease that is neither short-term nor for a low-value asset. The remaining lease payments at the acquisition date are {payment_1} in one year and {payment_2} in two years. Case convention: the discount rate is {discount_rate} (case data) and the contract is treated as a new contract at the acquisition date. Calculate the lease liability at the acquisition date.L3