Appendix C (AASB16_02-16_COMPapr21_07-21)

This appendix is an integral part of the Standard and has the same authority as the other parts of the Standard.

An entity shall apply this Standard for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted for entities that apply AASB 15 Revenue from Contracts with Customers at or before the date of initial application of this Standard. If an entity applies this Standard earlier, it shall disclose that fact.

AASB 2020-4 Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions, issued in June 2020, added paragraphs 46A, 46B, 60A, C20A and C20B. A lessee shall apply that amendment for annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted, including in financial statements not authorised for issue at the date AASB 2020-4 was issued.

AASB 2020-8 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform – Phase 2, which amended AASB 4, AASB 7, AASB 9, AASB 16 and AASB 139, issued in September 2020, added paragraphs 104–106 and C20C–C20D. An entity shall apply these amendments for annual reporting periods beginning on or after 1 January 2021. Earlier application is permitted. If an entity applies these amendments for an earlier period, it shall disclose that fact.

AASB 2021-3 Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions beyond 30 June 2021, issued in April 2021, amended paragraph 46B and added paragraphs C20BA–C20BC. A lessee shall apply that amendment for annual reporting periods beginning on or after 1 April 2021. Earlier application is permitted, including in financial statements not authorised for issue at the date AASB 2021-3 was issued.

For the purposes of the requirements in paragraphs C1–C19, the date of initial application is the beginning of the annual reporting period in which an entity first applies this Standard.

As a practical expedient, an entity is not required to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, the entity is permitted:

(a)            to apply this Standard to contracts that were previously identified as leases applying AASB 117 Leases and Interpretation 4 Determining whether an Arrangement contains a Lease. The entity shall apply the transition requirements in paragraphs C5–C18 to those leases.

(b)            not to apply this Standard to contracts that were not previously identified as containing a lease applying AASB 117 and Interpretation 4.

If an entity chooses the practical expedient in paragraph C3, it shall disclose that fact and apply the practical expedient to all of its contracts. As a result, the entity shall apply the requirements in paragraphs 9–11 only to contracts entered into (or changed) on or after the date of initial application.

Notwithstanding paragraphs C3 and C4, a public sector entity is not required to apply this Standard to assets that would be classified as service concession assets in accordance with AASB 1059 Service Concession Arrangements: Grantors. The entity shall continue to apply its existing accounting policy to these assets until AASB 1059 is applied.

A lessee shall apply this Standard to its leases either:

(a)            retrospectively to each prior reporting period presented applying AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors; or

(b)            retrospectively with the cumulative effect of initially applying the Standard recognised at the date of initial application in accordance with paragraphs C7–C13.

Not-for-profit entities electing to measure a class of right-of-use assets at initial recognition at fair value and applying this Standard retrospectively in accordance with paragraph C5(a) to leases that at inception had significantly below-market terms and conditions principally to enable the entity to further its objectives shall:

(a)            measure each right-of-use asset in the class at fair value;

(b)            measure the lease liability in accordance with this Standard; and

(c)            recognise any related items in accordance with paragraph 9 of AASB 1058 Income of Not-for-Profit Entities.

Any income arising shall be recognised as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the beginning of the earliest prior period presented.

Notwithstanding paragraph AusC5.1, not-for-profit entities that adopted AASB 1058 in an earlier reporting period are not required to remeasure the fair value of the right-of-use asset arising from leases that (1) at inception had significantly below-market terms and conditions principally to enable the entity to further its objectives and (2) were previously classified as finance leases applying AASB 117. Instead, the entity shall transition those leases in accordance with paragraph C11, regardless of which transition option in paragraph C5 is applied.

A lessee shall apply the election described in paragraph C5 consistently to all of its leases in which it is a lessee.

If a lessee elects to apply this Standard in accordance with paragraph C5(b), the lessee shall not restate comparative information. Instead, the lessee shall recognise the cumulative effect of initially applying this Standard as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the date of initial application.

If a lessee elects to apply this Standard in accordance with paragraph C5(b), the lessee shall:

(a)            recognise a lease liability at the date of initial application for leases previously classified as an operating lease applying AASB 117. The lessee shall measure that lease liability at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the date of initial application.

(b)            recognise a right-of-use asset at the date of initial application for leases previously classified as an operating lease applying AASB 117. The lessee shall choose, on a lease-by-lease basis, to measure that right-of-use asset at either:

(i)             its carrying amount as if the Standard had been applied since the commencement date, but discounted using the lessee’s incremental borrowing rate at the date of initial application; or

(ii)            an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before the date of initial application.

(c)            apply AASB 136 Impairment of Assets to right-of-use assets at the date of initial application, unless the lessee applies the practical expedient in paragraph C10(b).

Not-for-profit entities electing to measure a class of right-of-use assets at initial recognition at fair value and applying this Standard retrospectively in accordance with paragraph C5(b) to leases that (1) at inception had significantly below-market terms and conditions principally to enable the entity to further its objectives and (2) were previously classified as operating leases applying AASB 117 shall:

(a)            notwithstanding paragraph C8(b), measure each right-of-use asset in the class at fair value at the date of initial application of this Standard;

(b)            measure the lease liability in accordance with paragraph C8(a); and

(c)            recognise any related items in accordance with paragraph 9 of AASB 1058.

Any income arising shall be recognised as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the date of initial application of this Standard.

Notwithstanding the requirements in paragraph C8, for leases previously classified as operating leases applying AASB 117, a lessee:

(a)            is not required to make any adjustments on transition for leases for which the underlying asset is of low value (as described in paragraphs B3–B8) that will be accounted for applying paragraph 6. The lessee shall account for those leases applying this Standard from the date of initial application.

(b)            is not required to make any adjustments on transition for leases previously accounted for as investment property using the fair value model in AASB 140 Investment Property. The lessee shall account for the right-of-use asset and the lease liability arising from those leases applying AASB 140 and this Standard from the date of initial application.

(c)           shall measure the right-of-use asset at fair value at the date of initial application for leases previously accounted for as operating leases applying AASB 117 and that will be accounted for as investment property using the fair value model in AASB 140 from the date of initial application. The lessee shall account for the right-of-use asset and the lease liability arising from those leases applying AASB 140 and this Standard from the date of initial application.

A lessee may use one or more of the following practical expedients when applying this Standard retrospectively in accordance with paragraph C5(b) to leases previously classified as operating leases applying AASB 117. A lessee is permitted to apply these practical expedients on a lease-by-lease basis:

(a)            a lessee may apply a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with a similar remaining lease term for a similar class of underlying asset in a similar economic environment).

(b)            a lessee may rely on its assessment of whether leases are onerous applying AASB 137 Provisions, Contingent Liabilities and Contingent Assets immediately before the date of initial application as an alternative to performing an impairment review. If a lessee chooses this practical expedient, the lessee shall adjust the right-of-use asset at the date of initial application by the amount of any provision for onerous leases recognised in the statement of financial position immediately before the date of initial application.

(c)            a lessee may elect not to apply the requirements in paragraph C8 to leases for which the lease term ends within 12 months of the date of initial application. In this case, a lessee shall:

(i)             account for those leases in the same way as short-term leases as described in paragraph 6; and

(ii)            include the cost associated with those leases within the disclosure of short-term lease expense in the annual reporting period that includes the date of initial application.

(d)            a lessee may exclude initial direct costs from the measurement of the right-of-use asset at the date of initial application.

(e)            a lessee may use hindsight, such as in determining the lease term if the contract contains options to extend or terminate the lease.

If a lessee elects to apply this Standard in accordance with paragraph C5(b), for leases that were classified as finance leases applying AASB 117, the carrying amount of the right-of-use asset and the lease liability at the date of initial application shall be the carrying amount of the lease asset and lease liability immediately before that date measured applying AASB 117. For those leases, a lessee shall account for the right-of-use asset and the lease liability applying this Standard from the date of initial application.

Subject to paragraph AusC5.2 and notwithstanding paragraph C11, not-for-profit entities electing to measure a class of right-of-use assets at initial recognition at fair value and applying this Standard retrospectively in accordance with paragraph C5(b) to leases that (1) at inception had significantly below-market terms and conditions principally to enable the entity to further its objectives and (2) were previously classified as finance leases applying AASB 117 shall:

(a)            measure each right-of-use asset in the class at fair value at the date of initial application of this Standard;

(b)            measure the lease liability in accordance with this Standard; and

(c)            recognise any related items in accordance with paragraph 9 of AASB 1058.

Any income arising shall be recognised as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the date of initial application of this Standard.

If a lessee elects to apply this Standard in accordance with paragraph C5(b), the lessee shall disclose information about initial application required by paragraph 28 of AASB 108, except for the information specified in paragraph 28(f) of AASB 108. Instead of the information specified in paragraph 28(f) of AASB 108, the lessee shall disclose:

(a)            the weighted average lessee’s incremental borrowing rate applied to lease liabilities recognised in the statement of financial position at the date of initial application; and

(b)            an explanation of any difference between:

(i)             operating lease commitments disclosed applying AASB 117 at the end of the annual reporting period immediately preceding the date of initial application, discounted using the incremental borrowing rate at the date of initial application as described in paragraph C8(a); and

(ii)            lease liabilities recognised in the statement of financial position at the date of initial application.

If a lessee uses one or more of the specified practical expedients in paragraph C10, it shall disclose that fact.

Except as described in paragraph C15, a lessor is not required to make any adjustments on transition for leases in which it is a lessor and shall account for those leases applying this Standard from the date of initial application.

An intermediate lessor shall:

(a)            reassess subleases that were classified as operating leases applying AASB 117 and are ongoing at the date of initial application, to determine whether each sublease should be classified as an operating lease or a finance lease applying this Standard. The intermediate lessor shall perform this assessment at the date of initial application on the basis of the remaining contractual terms and conditions of the head lease and sublease at that date.

(b)            for subleases that were classified as operating leases applying AASB 117 but finance leases applying this Standard, account for the sublease as a new finance lease entered into at the date of initial application.

An entity shall not reassess sale and leaseback transactions entered into before the date of initial application to determine whether the transfer of the underlying asset satisfies the requirements in AASB 15 to be accounted for as a sale.

If a sale and leaseback transaction was accounted for as a sale and a finance lease applying AASB 117, the seller-lessee shall:

(a)            account for the leaseback in the same way as it accounts for any other finance lease that exists at the date of initial application; and

(b)            continue to amortise any gain on sale over the lease term.

If a sale and leaseback transaction was accounted for as a sale and operating lease applying AASB 117, the seller-lessee shall:

(a)            account for the leaseback in the same way as it accounts for any other operating lease that exists at the date of initial application; and

(b)            adjust the leaseback right-of-use asset for any deferred gains or losses that relate to off-market terms recognised in the statement of financial position immediately before the date of initial application.

If a lessee previously recognised an asset or a liability applying AASB 3 Business Combinations relating to favourable or unfavourable terms of an operating lease acquired as part of a business combination, the lessee shall derecognise that asset or liability and adjust the carrying amount of the right-of-use asset by a corresponding amount at the date of initial application.

If an entity applies this Standard but does not yet apply AASB 9 Financial Instruments, any reference in this Standard to AASB 9 shall be read as a reference to AASB 139 Financial Instruments: Recognition and Measurement.

A lessee shall apply AASB 2020-4 Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions (see paragraph C1A) retrospectively, recognising the cumulative effect of initially applying that amendment as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the beginning of the annual reporting period in which the lessee first applies the amendment.

In the reporting period in which a lessee first applies AASB 2020-4 Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions, a lessee is not required to disclose the information required by paragraph 28(f) of AASB 108.

A lessee shall apply AASB 2021-3 Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions beyond 30 June 2021 (see paragraph C1C) retrospectively, recognising the cumulative effect of initially applying that amendment as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the beginning of the annual reporting period in which the lessee first applies the amendment.

In the reporting period in which a lessee first applies AASB 2021-3 Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions beyond 30 June 2021, a lessee is not required to disclose the information required by paragraph 28(f) of AASB 108.

Applying paragraph 2 of this Standard, a lessee shall apply the practical expedient in paragraph 46A consistently to eligible contracts with similar characteristics and in similar circumstances, irrespective of whether the contract became eligible for the practical expedient as a result of the lessee applying AASB 2020‑4 Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions (see paragraph C1A) or AASB 2021-3 Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions beyond 30 June 2021 (see paragraph C1C).

An entity shall apply these amendments retrospectively in accordance with AASB 108, except as specified in paragraph C20D.

An entity is not required to restate prior periods to reflect the application of these amendments. The entity may restate prior periods if, and only if, it is possible without the use of hindsight. If an entity does not restate prior periods, the entity shall recognise any difference between the previous carrying amount and the carrying amount at the beginning of the annual reporting period that includes the date of initial application of these amendments in the opening retained earnings (or other component of equity, as appropriate) of the annual reporting period that includes the date of initial application of these amendments.

[Deleted by the AASB]

This Standard repeals AASB 117 Leases issued in August 2015.  Despite the repeal, after the time this Standard starts to apply under section 334 of the Corporations Act (either generally or in relation to an individual entity), the repealed Standard continues to apply in relation to any period ending before that time as if the repeal had not occurred.

[Note: When this Standard applies under section 334 of the Corporations Act (either generally or in relation to an individual entity), it supersedes the application of the repealed Standard.]

When applied or operative, this Standard supersedes:

(a)            Interpretation 4 Determining whether an Arrangement contains a Lease;

(b)            Interpretation 115 Operating Leases—Incentives; and

(c)            Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.