FRS 116 Leases – Presentation

FRS 116 Leases – Presentation

Business owners should present the financial information associated with leases in the company’s financial statements, just like how they manage other business transactions. The items that involve in the presentation are the right-of-use asset and the lease liability. If you are not familiar with accounting, these two terms may not sound familiar to you, and you probably would not know how you should present them in your financial statements as this needs an in-depth understanding in FRS 116. In this case, hiring an accounting services in Singapore can be a wise choice as doing so helps to ensure that your company has complied with the applicable standards.

In the company’s balance sheet or the notes, a lessee should present right-of-use asset and lease liabilities separately from other assets and liabilities. For the right-of-use asset, if the lessee does not separate it from the general category of assets in the balance sheet, it should include the right-of-use asset in the same line item as the one that the underlying asset would be in if the company owns it. Also, the lessee should disclose the line items in the balance sheet that consist of the right-of-use asset.

Note that this requirement is not applicable to the right-of-use assets which meet the investment property’s definition. The lessee should present this type of asset as an investment property in the company’s balance sheet.

On the other hand, for the lease liability, if the lessee does not separate it from the general category of liabilities in the balance sheet, then it needs to disclose the line items in the balance sheet which consist of the lease liability.

A lessee should not present the interest expense of lease liability together with the depreciation charge on the right-of-use asset. It needs to present them separately in its statement of profit or loss and other comprehensive income. The interest expense of lease liability makes up one of the components of finance costs. According to FRS 1: Presentation of Financial Statements, one should present such an expense (Also see An Overview of Deferred Expenses) separately.

Apart from that, there are some rules on the classification of payments in the cash flow statement. The lessee should categorise cash payments for the lease liability’s principal portion in its financing activities. When classifying the cash payments for the lease liability’s interest portion, it needs to apply the requirements specified by FRS7. Under the category of operating activities, the lessee should include payments for low-value assets leases, short-term lease payments, as well as the variable lease payments that the lessee does not cover when it measures the lease liability.

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