Module I· Lease Accounting (IFRS 16 vs. HGB)Basic
Question
What are right-of-use assets and lease liabilities?
Answer
Right-of-use asset (RoU)
An asset recognized by the lessee under IFRS 16 — the right to use the leased asset.
- Initial: lease liability + prepayments +/- adjustments
- Subsequent: depreciated over the lease term and shown in D&A
Lease liability
A liability on the balance sheet.
- Initial: PV of all lease payments, discounted at the incremental borrowing rate
- Subsequent: principal repayment reduces the liability; the interest component hits the income statement
Example — 5-year lease, 100 p.a., 5% rate, PV ~432
Initial entry: RoU 432, lease liability 432.
Year 1 effects:
- D&A: 86 (straight-line over 5 years)
- Interest: 22 (5% x 432)
- Principal repayment: 78
Pitch tip
For IFRS 16 adjustments in comps, show RoU assets and lease liabilities separately: include the lease liability in net debt and show the EBITDA effect versus reported.