Modified Approach
IFRS16 Focus
In the modified approach, there is no restatement of comparative information. The cumulative effect is recognized as an adjustment to the opening balance of retained earnings (or, if applicable, another component of equity).
Impact on the debt:
Rental debt is determined on the basis of a discount of the rents remaining to be paid on the date of first application.
Impact on the asset:
The valuation of the right of use (ROU) is corresponding to:
- the book value, if IFRS 16 had been applied on the effective date of the contract, discounted at the lessee marginal debt level at the date of the first application, or
- the rental debt, adjusted for advance payments and rents payable in respect of the date of first application.
Note: Note : Only the second valuation is available in Lease.
Parametrization of the transitory disposition
7.2.1 Transitory disposition of the Group
The selection of the of the standard management is :
Entry of the first IFRS 16 application date (FTA)
This date must be entered in the « Accounting » part of the contract
Note: Contract using IAS17 will treated as per the full retrospective approach.
Visualization of the Retrospective modified approach
Lease enables to visualize contractual data in total retrospective approach (original contractual data) or in modified retrospective approach. For impacted contracts, this visualization is accessible via the toolbar:
In Advance Contracts
Initial Lease Conditions
Lease is looking for the first deadline affected by the FTA. The first rent is then prorated for its part included in the FTA and constitutes the share of the payments in advance.
Example :
Either an FTA in January 2019 and the quarterly maturity of 12/12/2018 for € 1,000 will be prorated according to the debt amortization base selected as follows:
Réallocationduloyer par datedeclôture | BASE365 | BASE360 | |||
Nbjours | Loyer | Nbjours | Loyer | ||
12/ 12/ 2018 | 31/ 12/ 2018 | 20 | 222,22 | 19 | 211,11 |
01/ 01/ 2019 | 31/ 01/ 2019 | 31 | 344,44 | 30 | 333,33 |
01/ 02/ 2019 | 28/ 02/ 2019 | 28 | 311,11 | 30 | 333,33 |
01/ 03/ 2019 | 11/ 03/ 2019 | 11 | 122,22 | 11 | 122,22 |
TOTAL | 90 | 1000,00 | 90 | 1000,00 | |
| Proratadeloyer payéd'avance | 777,78 | 788,89 |
Initial Lease Conditions :
Impact on the Debt depreciation
Only rents to be paid after the first application date are discounted. Existing rent on the date of first application is then considered as pro rata rent paid in advance.
Original Contract Schedule :Impact on the Asset valuation
The valuation of the right of use corresponds to the rent debt adjusted for the prepayment in relation to the date of first application. The asset will be amortized over the remaining useful life in respect of the FTA.
Original Asset valuation :Accounting Entries
31/01/2019 :
First Time Application (FTA)
L-A210 – Gross Value | FE10 | 8 517,23 |
|
L-A486-1 - Advanced Paiements | FE10 |
| 777,78 |
L-L161 – Current Debt | FE10 |
| 7 739,46 |
Restatement of rent paid in advanced
L-A486-1 – Advanced Paiement | FC01 | 344,44 |
|
L-R612 - Rent |
|
| 344,44 |
Reclassification of non-current Debt
L-L160 – Non current Debt | FE12 | 3 388,92 |
|
L-L161 – Current Debt | FE12 |
| 3 388,92 |
Amortization
L-A280 - Amortization | CR01 |
| 329,63 |
L-R681 – Depreciation charge |
| 329,63 |
|
In arrears Contracts
Initial Conditions
Lease is looking for the first deadline affected by the FTA. The first rent is fully included in the FTA.
Original initial conditions :Impact on the Debt depreciation
Only rents that are due after the first application date are discounted. The rent that expires on the date of first application is therefore considered in full.
Original Contract Schedule :Impact on the Asset valuation
The valuation of the right of use corresponds to the rent debt minus the rent to be paid prior to the date of first application. The asset will be amortized over the remaining useful life in respect of the FTA.
Example :
Either an FTA in January 2019 and the quarterly deadline of 12/03/2019 for 1000 €. The rent pro rata excluded from the FTA decreases the valuation of the asset:
Réallocationduloyer par datedeclôture | BASE365 | BASE360 | |||
Nbjours | Loyer | Nbjours | Loyer | ||
13/ 12/ 2018 | 31/ 12/ 2018 | 19 | 211,11 | 18 | 200,00 |
01/ 01/ 2019 | 31/ 01/ 2019 | 31 | 344,44 | 30 | 333,33 |
01/ 02/ 2019 | 28/ 02/ 2019 | 28 | 311,11 | 30 | 333,33 |
01/ 03/ 2019 | 12/ 03/ 2019 | 12 | 133,33 | 12 | 133,33 |
TOTAL | 90 | 1000,00 | 90 | 1000,00 | |
| Proratadeloyer àpayer | 211,11 | 200,00 |
31/01/2019 :
First Time Application (FTA)
L-A210 – Gross Value | FE10 | 7 528,34 |
|
L-L161 – Current Debt | FE10 |
| 7 739,46 |
L-L408-1 – Rent to pay | FE10 | 211,11 |
|
Rent Restatement
L-R612 - Rent |
|
| 344,44 |
L-R661 - Interests |
| 19,77 |
|
L-L161 – Current Debt | CC03 | 324,67 |
|
Reclassification of the non-current debt
L-L160 – Non current debt | FE12 | 4 345,99 |
|
L-L161 – Current debt | FE12 |
| 4 345,99 |
Amortization
L-A280 - Amortization | CR01 |
| 328,24 |
L-R681 – Depreciation expenses |
|
328,24 |
|
Modified Approach Options – Right of Use calculation
At the first application date of the IFRS16 Norm, if the lessee chooses the modified approach, a Right of Use is calculated following 2 options (this choice can be made contract by contract):
- Net book value of the Right of Use if the Norm has been applied from the beginning of the contract ; using the lessee’s incremental borrowing rate at the first time application date,
- Net Book value equal to the discount debt adjusted from the advanced payments, provisions entered in the balance sheet immediately before the first time application date.
Situation Point
Example : contract starting the 01/12/2017 of which the IFRS 16 application date is the 01/01/2019.
The debt is valued by applying the discount rate of 5% at 10 274,40.
Option « Net Book Value »
Select the Calcul Option
If this option applied, the ROU is based on the Net Book Value at the 01/01/2019 if the IFRS 16 starts from the 01/12/2017 adjusted by:
- The advanced payments for the “in advance” contracts if the first time application is between a payment period
- The rent to pay for the “arrears” contracts if the first time application is between a payment period
Note: The counterpart of the ROU adjustment is in the Equity.
Accounting Schema at the entry date
Option « Dicounted Debt »
Selection of this option (by default selected)
If this option applied, the ROU is based on the Discount debt adjusted by:
- The advanced payments for the “in advance” contracts if the first time application is between a payment period
- The rent to pay for the “arrears” contracts if the first time application is between a payment period
Accounting Schema at the entry date