ACCOUNTING AND TAXATION OF LEASING CONTRACTS

LEASING ACCOUNTING ACCORDING TO NAS VS IFRS

However, the single lessee accounting model provided by IFRS 16 differs significantly from the accounting model in the case of the operating lease, under the terms of NAS Leasing Contracts.

NAS Leasing Contracts, the lessee, part of an operational leasing contract, highlights a rent expense,

IFRS 16, this expense is reflected partly in a financial expense and partly in an expense with the amortization of the right of use.

Interest, in the context of IFRS 16 provisions, interest is rather the result of an internal calculation, being more of an intrinsic value. The interest rate is set according to how much it would cost the lessee-entity if it borrowed on the market to use the underlying asset.

In the profit and loss account, a lessee must present separately the interest expense related to the debt arising from the leasing contract and the depreciation expense for the asset related to the right of use. The interest expense related to the debt arising from the leasing contract is a component of the financing costs.

The lessor must use the interest rate implied in the lease agreement to assess the net lease investment.

Sometimes, lessors, manufacturers or dealers set artificially low interest rates to attract customers. The use of such an installment will lead to the lessor’s recognition, at the start date of the leasing contract, of an excessive part of the total income from the transaction. If artificially low interest rates are used, a lessor, producer or dealer must restrict the profit from the sale to that which would apply if an interest rate were applied on the market.