MSSF/IFRS 16 – a few words on the new standard (part 5)

Piotr STASZKIEWICZ
Audit Partner at RSM Poland

Previously, we focused on the establishing of the starting value of the right to use an asset. We have mentioned the fact that the value of the obligation should be discounted. And how to calculate the discount? What rate of discount to apply?

First of all, let us remember that the value of the obligation should contain all fixed elements (fees), which the leasingholder is obliged to pay. If the occupant is also obliged to pay for the completion of the call option, it ought to be taken into consideration, too. Additionally, variable fees based on the index or the rate ought to be taken into account.

Such a rate of fees is subject to discount, taking into account the interest rate from a specific leasing contract, and if the rate is not to be stated, then by means of a rate that would have been specified if the leasingholder had taken mortgage/loan (for the period similar to the duration of the leasing contract) in order to buy a similar asset, based on which they acquire the rights resulting from the leasing contract.

The subjects of the contract modification as well as the variability of rates shall be looked into at a different time. In this article, we would like to touch upon the issue of the necessity to divide the components of the contract into leasing-related and non-leasing-related. The establishing of the value of the leasing liability, involving the right of enjoyment attached to assets, has to be based solely on leasing components, thus by definition any extra services not constituting the main purpose of the signed agreement shall be rejected. For example, in a contract for the use of a car, it has been written that the car provider is additionally responsible for, for example, the servicing and monthly washing. Those two extra services are not a leasing component in and of themselves, but only an extra. They ought to be separated and not included in the starting value of the obligation on the account of leasing as well as the right to use the asset (the car). When a leasingholder does not know the value of extra services, we are obliged to make the closest approximations possible based on the observable data. Let us look at an example.

Company X signed a contract for 30 months to use a car, paying 100 items every month, the servicing included, specified in the attachment to the contract, as well as to do the washing of the bodywork once a month. The market value of the servicing is around 10 items, the value of washing is 7 items, and the value of the 'clean' leasing at a competing leasing company is 90 items. The total value of the "market" services, treated separately, would amount to 70 items.

The share of the nonleasing components is 16% (17 items/107 items). Therefore, to calculate the further value of obligation as well as the right to use the asset, the equation 84%*100 items = 84 items shall be used.

The value of the obligation is thus 30x84 = 2.520. Establishing the discount ratio at the average level of 1.2, the starting value of the obligation, and thus the assets, would amount to 2,100 items. Such a value ought to be registered as of the start of the leasing. Every month, the settling cost is amortisation in the amount of 58 items.   

The changing fees as well as modifications in the leasing agreement shall be discussed on the blog soon.