FRS 116 Leases - Disclosure
As a business owner, you probably know that you need to disclose some of the business activities and financial data for the reference of the readers of the financial statement. However, do you know that you need to disclose the transactions related to leases? Lessees should follow a series of steps and requirements stated in FRS 116: Leases to make sure that those financial statements can present information about lease as truthful as possible. Complying with the applicable standards when preparing financial statements requires a certain level of expertise in accounting. If you are too busy to delve in this field, accounting firms in Singapore are always there to help you out.
The disclosures aim to let the lessees disclose information (Also see FRS 116 Leases – Disclosing Information Related to Finance Leases and Operating Leases) in the notes which provide a basis for the readers of financial statements to evaluate the impact that leases have brought to the lessee’s financial performance, financial position and cash flows when the readers use the notes together with the balance sheet, income statements and cash flow statement. Thus, the requirements about disclosures that FRS 116 has specified are to meet the objective mentioned above.
In a particular section in the financial statement or a single note, a lessee needs to disclose information about leases that it is a lessee. Nevertheless, it does not have to copy the information that it has already stated somewhere else in its financial statement if it has incorporated the information by cross-reference in a note or another section regarding leases.
The sums that the lessee should disclose in a reporting period include depreciation charge of the right-of-use assets according to the types of the underlying asset, as well as the interest expense of lease liability. It should also disclose the expenses relevant to short-term leases as well as the expenses associated with the leases of low-value assets. For the former, the expense does not need to include the expense related to leases which have a lease term of a month and below. For the latter, the expense should not take into account the expense relevant to short-term leases for assets with low value.
Besides, the lessee should also disclose the expense associated with the lease payments that it has not included when measuring the lease liabilities. Other amounts that the lessee needs to disclose are income generated through the sublease of right-of-use assets, additions to right-of-use assets, the sum of cash outflow for leases, as well as gain or loss that arise from leaseback and sales transactions. The last amount that the lessee should not leave out is the carrying amount of the right-of-use assets by the class of the underlying assets when the reporting period comes to an end.
Lessees should disclose the information mentioned above in a tabular format except if there is another more suitable format. Apart from the disclosures mentioned above, the lessee should disclose extra information regarding the lease (Also see FRS 116 Leases – How to Deal with Lease Modifications?) that it is involved so that it can meet the objective of disclosure stated earlier. The extra information should be helpful to the users of financial statements so that they can examine the nature of the leasing activities the lessee has carried out, the covenants or restrictions that the leases have imposed on the lessee, as well as leaseback and sales transactions.
The lessee may also need to disclose the future cash flows that it is potentially exposed to, and these cash flows are not shown in the measurement of lease liabilities. Those exposures may be due to variable lease payments, termination and extension options, leases that the lessee is committed but not commenced yet, and the residual value guarantee.