MSSF/IFRS 16 – a few words on the new standard (part 4)

Piotr STASZKIEWICZ
Audit Partner at RSM Poland

In the previous parts, we were discussing theoretical aspects related to leasing and the new standard, among others: whom it concerns, what the exemptions are and when the commencement of leasing shall take place. The next issue to be discussed is the establishing of the starting value as well as the amortization rate.

The amortization rate should not constitute a problem, as knowing the useful life of an asset (or the date of the ending of the leasing agreement - depending on which of the stated time limits is longer and whether the purchase of the assets shall take place), it will be easy to establish it and apply it accordingly every month.

The starting value of the right of enjoyment attached to assets should include:

• the starting value of the obligation on account of leasing;
• any leasing-related payments made at the moment of concluding a contract or prior to it, decreased by any incentives obtained;
• any starting cost borne by the leaseholder;
• the estimated values of the future cost of deinstallation remaining on the part of the leaseholder in relation to the asset component the agreement concerns and whose purpose is to recover the location of the asset component.

One can assume the starting point of the right shall pertain to the starting value of the obligation on account of leasing. Thus, how to establish the obligation? Let us use the example of the leasing of the right to use a car.

Company X has signed a contract for 30 months for using the car, paying 100 items monthly. The value of the obligation is therefore 30x100 - 3.000 items. According to MSSF 16 (par. 26), the value of the obligation shall be demonstrated taking account of the deduction. Assuming the coefficient at the average level of 1.2, the starting value of the obligation, and the assets themselves, would amount to 2,500 items. Such a value ought to be registered at the moment of starting the leasing. Every month the accounting cost is amortization in the amount of 83 items.

And how to calculate the discount? What discount rate to apply and how to handle the additional cost incurred (apart from the main levy called the rate)? We shall write about it soon.