LEASING ACCOUNTING ACCORDING TO INTERNATIONAL REGULATIONS

Classification of the leasing contract

It is made on the date of initiation and is revalued only if there is a change in the leasing contract.

Changes in estimates (e.g., changes in the estimated economic life or estimated residual value of the underlying asset) or changes in circumstances (e.g., default by the lessee) do not result in a new classification of leasing for accounting purposes.

At the date of the commencement of a leasing contract, a lessor must recognize, in the statement of financial position, the assets held in the financial leasing system and present them as a receivable at an amount equal to the net investment in leasing.

A lessor must recognise financing income over the term of the lease agreement based on a pattern that reflects a constant periodic rate of return on the lessor’s net lease investment.

According to IFRS 16, the classification of leases is no longer relevant except in the context of the lessor’s accounting, the only contractual party that will continue to classify leases as financial or operational leases.

The distinction between financial leasing and operational leasing will have significance only for the accounting carried out at the level of the lessor.

The asset underlying the leasing contract (underlying asset) is defined, in relation to the right of use, as an asset for which a lessor has granted the right to use that asset to a lessee.

An important step provided for by IFRS 16 refers to the identification of a leasing contract. Thus, when initiating a contract, an entity must assess whether that contract is, or includes, a lease.

fu couclusiou, The first question that a lessee must ask himself refers to the existence of an underlying asset, which will provide clues as to whether a leasing contract really exists according to the provisions of IFRS 16 or whether it is a service contract and falls under another accounting standard.

Starting from the definition, the provisions of the standard are subordinated to a single accounting treatment for the lessee, namely the recognition in the balance sheet of the assets and liabilities related to the rights and obligations arising from the leasing contracts.

For the lessor, IFRS 16 did not bring changes in terms of accounting.

From the lessee’s perspective, it can be appreciated that the principle of the prevalence of the economic over the legal is not only still found in the way of reflection in the accounting, but its application becomes even more pronounced, since the right to use the asset is pursued in particular, being recognized as a distinct asset in the lessee’s accounting and duly depreciated, while the right of ownership remains in the background and without having influences in the way of accounting.

In this regard, in accordance with the provisions of IFRS 16, a lessee may obtain title to an underlying asset before the title is transferred to the lessor and the asset is leased to the lessee. Obtaining the title deed does not in itself determine how the transaction is accounted for. If the lessee controls the underlying asset (or gains control of it) before the asset is transferred to the lessor, the transaction is a sale and leaseback transaction.