‘Definitions’ (Dutch GAAP) and IFRIC 4 ‘Determining
whether an arrangement contains a lease’ and IAS 17
‘Leases’ (IFRS).
Dutch GAAP IFRS
Definition and scope
Definition A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time.
DAS 940
Similar to Dutch GAAP.
IAS 17.4
Determining whether an arrangement contains a lease
Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement. A lease is present when:
• fulfilment of the arrangement is dependent on the use of a specified asset or assets; and
• the arrangement conveys a right to use the asset or assets.
DAS 292.107
Similar to Dutch GAAP.
IFRIC 4.6
Scope of the standard
The standard applies to accounting for all leases other than:
• leases in the exploration industries;
• licensing agreements for such items as motion picture films and video recordings.
• investment property provided by lessors under an operating lease; and
• lessee’s property accounted as investment property Arrangements that do not take the legal form of a lease but that convey rights to use assets in return for payments are in substance leases and are accounted as such.
DAS 292.101
Similar to Dutch GAAP. However lease accounting is also not applied to:
• biological assets held by lessees under a finance lease; and
• biological assets provided by lessors under an operating lease.
IAS 17.2, IFRIC 4
Lease classification
General characteristics
A lease is classified at inception as a finance lease if it transfers substantially all the risks and rewards incidental to ownership to the lessee. All other leases are treated as operating leases. Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the legal form of the contract.
Dutch GAAP IFRS Examples of situations that would normally lead to a lease being classified as a finance lease
In substance, a finance lease is a financing transaction that enables the lessee to effectively acquire an asset, although the entity may not get the legal title to ownership.
The following are examples of situations that, individually or in combination, would normally lead to a lease being classified as a finance lease:
• Ownership is transferred to the lessee at the end of the lease term.
• The lessee has an option to buy the leased asset at the end of the lease term, priced so that it is reasonably certain at inception that the lessee will exercise the option.
• The lease term is for at least 75% of the economic life of the asset.
• At inception, the present value of the minimum lease payments is 90% or more of the fair value of the asset. • The leased assets are very specialised and only the
lessee can use them without major modifications.
DAS 292.120
Similar to Dutch GAAP. However IFRS does not contain quantitative thresholds.
IAS 17.10
Reassessment of the lease
classification
Lease classification is made at the inception of the lease. If at any time the lessee and the lessor agree to change the provisions of the lease, other than by renewing the lease, in a manner that would have resulted in a different classification of the lease if the changed terms had been in effect at the inception of the lease, the revised agreement is regarded as a new agreement over its term. Changes in estimates, or changes in circumstances, do not give rise to a new classification of a lease for accounting purposes.
DAS 292.123
Similar to Dutch GAAP.
IAS17.13
Sale-and-lease- back transactions
Sale and leaseback transactions are a way of releasing cash and are an alternative to borrowing. The vendor sells an asset, but retains use of the asset by entering into a lease with the buyer/lessor. The accounting treatment depends on the substance of the transaction, taking into account whether the leaseback is finance or operating lease, and whether the sale proceeds and lease rentals are on an arm’s length basis.
If the leaseback is classified as an operating lease, then any gain is recognised in the income statement immediately if the sale and leaseback terms clearly are at fair value. Otherwise, the sale and leaseback are accounted for as follows:
• If the sale price is above the fair value: - the difference between fair value and carrying
amount is recognised immediately; but - the excess of sale price over fair value should be
deferred and amortised over the period for which the asset is expected to be used.
• If the sale price is below the fair value: - the difference between sale price and carrying
amount should be recognised immediately except that, if a loss arising is compensated by future rent at below market price, it should be deferred and amortised in proportion to the rent payments over the period for which the asset is expected to be used.
For sale-and-lease-back transactions resulting in a finance lease-back, any gain realised by the seller-lessee on the transaction is deferred and amortised through the income statement over the lease term.
DAS 292.401-407
Similar to Dutch GAAP.
Dutch GAAP IFRS
Lease treatment in the financial statements of a lessee
Finance lease The assets and liabilities are recognised at fair value or, if lower, at the present value of the minimum lease payments at the inception of the lease. The present value of minimum lease payment is discounted using the interest rate implicit in the lease. If the interest rate implicit in the lease is impracticable to determine the lessee’s incremental borrowing rate is to be used. The leased asset is depreciated over the shorter of the lease term and its useful life. If it is reasonably certain that title will pass to the lessee at the end of the lease term, the asset is depreciated over its useful life. Lease rentals are split into two components – a finance charge and the reduction of the outstanding liability. The finance charge shall be allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents shall be charged as expenses in the periods in which they are incurred.
DAS 292.201, 292.206-207, DAS 121, DAS 940
Similar to Dutch GAAP.
IAS 17.20, 17.25, 17.27
Operating lease Lessees do not capitalise operating leases. Lease payments, excluding any payments for services such as insurance, are recognised on a straight line basis over the lease term unless there is a systematic way to spread the cost that is more representative of the benefit to the user.
DAS 292.210-211, DAS 940
Similar to Dutch GAAP.
IAS 17.33
Lease treatment in the financial statements of a lessor
Finance lease - lessor
The lessor recognises a finance lease receivable for the amount due under the finance lease, measured at the ‘net investment’ in the lease. This is calculated as the minimum lease payments, including any residual value guaranteed by the lessee or a third party, discounted at the interest rate implicit in the lease, plus any unguaranteed residual value which accrues to the lessor. Lease rentals are allocated between a reduction in the receivable and finance income so that finance income recognised represents a constant percentage rate of return on the net investment.
Entities have an accounting policy option regarding the initial direct costs. Initial direct costs are included in the initial measurement of the lease receivable or can either be immediately recognised in the income statement.
DAS 292.301-309
Similar to Dutch GAAP.
However initial direct costs can only be included in the initial measurement of the lease receivable and cannot be immediately recognised in the income statement.
IAS 17.36-41
Operating lease - lessor
The lessor continues to recognise the leased asset as property, plant and equipment. Rentals are taken to the income statement on a straight line basis, unless there is another systematic basis that is more representative. Entities have an accounting policy option for the Initial direct costs incurred by lessors in negotiating and arranging an operating lease. These shall either be added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the lease income, or they shall be immediately recognised in the income statement. The depreciation policy for depreciable leased assets shall be consistent with the lessor’s normal depreciation policy for similar assets, and depreciation shall be calculated in accordance with DAS 210 (Intangible assets) and DAS 212 (Property, plant and equipment).
DAS 292.312-318
Similar to Dutch GAAP. However, initial direct costs are not allowed to be immediately recognised in the income statement.
Dutch GAAP IFRS Incentives
Operating lease incentives
No explicit guidance is included in DAS. However in practice the same requirements as IFRS apply.
Lessors sometimes provide incentives for lessees to enter into operating leases. Incentives include rent free or below-market rent periods, upfront cash payments to the lessee, directly paying the lessee’s costs, for example, relocation, or settling their liabilities.
Whatever the form of an incentive, it should be taken into account as part of the overall consideration paid by the lessee to the lessor for the leased asset. Therefore a lessee should spread incentives received over the lease term on a straight line basis (rarely, another systematic basis may be more appropriate). In effect this reduces the cost of the rentals taken to the income statement, so that the aggregate consideration reflects the true rental cost to the lessee.
The lessor recognises incentives paid as a reduction of rental income on a straight-line basis over the lease term.