IASB has issued amendments to IFRS 16 to allow lessees (No relief for lessors):

  • to not account for rent concessions as lease modifications.
  • if they are a direct consequence of COVID-19 and the revised consideration is substantially the same or less than the original consideration.

The reduction in lease payments relates to payments due on or before June 30th 2021, and no other substantive changes have been made to the terms of the lease.

There is guidance about Covid-19 related rent concessions in auditor’s publication, like the one from KPMG that can be found here:

https://home.kpmg/content/dam/kpmg/xx/pdf/2020/06/leases-rent-concessions.pdf

We recommend watching our webinar for more guidance about Covid-19 related rent concessions:

https://www.youtube.com/watch?v=UzPZarHvgXM&list=PLQPoEZ92VaErPhiSoS7X__DrtuBw-PjbU

Lessees applying the practical expedient are required to give additional disclosers to disclose the amount recognized in profit or loss to reflect changes in lease payments that arise from covid-19 related rent concessions.

  • If not modification accounting – typically accounted for as variable lease payment
  • Rent relief: Derecognition of liability (IFRS 9 no. 3.3.1) and gain in P&L – to the extent the relief is unconditional
  • Rent deferral: No derecognition, but potentially net present value effect on liability

  • No effect on ROU asset

    Impairment indicators may be present and impairment test may have to be performed.

1) Update the ShareControl add-in and calculation:

The Share Control calculation file needs to be updated in order to make calculations in accordance with the amendment to IFRS 16. We also recommend updating the ShareControl add-in to the latest version to get the improved registration of periods. This will make the registration process easier. Contact us to make the upgrade.

2) Covid-19 amendments to IFRS 16:

The following examples are for those that use the practical expedient as described below and fulfil the requirements for the practical expedient. If you’re not within the scope of the amendments, please see the guidance of accounting for reassessment and modifications in the first section of this manual.

14.12.1 Release of payments

The lease contract is prepaid quarterly, with a rent of 10.000 and a discount rate of 4%. The rental period is from January 1st 2018 to December 31st 2025, with an option to extend another three years (Unused).

In this example, no rent is payable in Q3 2020, this concession follows the covid-19 amendments, and you’ve decided to use the relief.

The cash flow is registered as follows, before the rent concession:

Use Log other change image

We recommend copying the number of new periods that is required first. In this case, two new periods: Third quarter 2020 with 0 payment and the period from October 1st 2020 to the end of the contract with a payment of NOK 10.000.

Set the date for when the change should be recorded. The data needs to be BEFORE the first change in payments. If the date is set after the change is effective, the change will not be included.

Write either Covid-19, covid19 or covid-19 and separate with a semicolon if you want to add other comments.

Enter new periods by clicking image and make modifications to dates and amounts. We recommend doing this chronologically, since the start date is always set to the date after the end date.

Then click Save image and remember that the discount rate should not be updated.

Go to the calculation file and click Update leases on the Menu page.

Go to the lease in question and review that the new payments structure is correct and that the period the change is registered is correct (In this case, June 2020).

The gain and loss are the net present value of the rent relief at the chosen date for the accounting. Depreciations are not changed, and the lease liability reflects the relief of rent for one quarter. This is to ensure that the lease liability is correct at the end of second quarter 2020.

15.12.2 No rent is payable in Q3 2020, rent in Q3 2021 is increased by 11’.

We use the same contract as above and follow the same steps. The change is within the scope of the Covid-19 amendments in IFRS 16. In this case, we need 4 new periods. The registration of the change and the calculation result can be seen below.

Use Log other changes and enter Covid-19 under Change comment.

Update the calculation file and review periods.

Make sure the change is registered in the correct period.

If the NPV of the change is small, you might consider not registering these in Share Control, but please bear in mind that the lease liability can be misleading in the periods the payment is delayed.

15.12.3 No rent is payable in Q3 2020 and one quarter is added to the end of the lease at a rent of 10’ for that quarter.

The change is evaluated to be within the Covid-19 amendment of IFRS 16.

Use Log other changes and enter “Covid-19” under comments.

Update the calculation file and review periods.

Make sure the change is registered in the correct period.