AASB 16 extract:
- the amount of the initial measurement of the lease liability, as described in paragraph 26;
- any lease payments made at or before the commencement date, less any lease incentives received;
- any initial direct costs incurred by the lessee; and
- an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories. The lessee incurs the obligation for those costs either at the commencement date or as a consequence of having used the underlying asset during a particular period.
Fitout incentives received on commencement date
Lease incentives, as defined at Appendix A of AASB 16 Leases (AASB 16), are payments made by a lessor to a lessee associated with a lease, or the reimbursement or assumption by a lessor of costs of a lessee.
Fitout expenditure undertaken or reimbursed by the lessor may be recognised as an asset by either the lessee or lessor (i.e. to reflect the party that controls the economic benefits from the expenditure). Such expenditure may have been either:
- promised by the lessor as an inducement for the lessee to enter the lease
- undertaken by the lessor independent of the lease contract.
Worksheet B in Example lease journals illustrates accounting for lease incentives received on commencement after the transition date of 1 July 2019.
Note 10: Fitout incentives received on commencement date
Lessor reimbursements of lessee leasehold improvement expenditure, or direct lessor expenditure on leasehold improvements, can only be considered lease incentives under AASB 16, where both the:
- expenditure was promised in the lease contract as a condition for the lessee to enter the lease
- lessee (rather than lessor) primarily benefits from that expenditure and has consequently recognised the expenditure as a fitout asset.
These incentives received must be deducted from the ROU asset’s initial value, consistent with paragraph 24(b) of AASB 16.
Fitout incentives received after commencement date
Lessors may promise to provide fitout or to reimburse lessee fitout costs as an incentive for lessees to enter a lease, but the incentive remains outstanding at lease commencement.
Lessee accounting for fitout incentives that are outstanding at lease commencement differs from fitout incentives received on lease commencement.
AASB 16 extract:
- fixed payments (including in-substance fixed payments as described in paragraph B42), less any lease incentives receivable.
For details on all lease payments, at the commencement date, to be included in the measurement of the lease liability, see paragraph 27 of AASB 16.
Lessee accounting for fitout incentives receivable should:
- reflect the substance of the arrangement
- not differ whether the:
- lessee purchases the fitout and is subsequently reimbursed by the lessor
- lessor purchases the fitout directly on the lessee’s behalf.
Where the lessee purchases the fitout and is subsequently reimbursed, the lessee should recognise a fitout asset when purchased, with a corresponding increase in the lease liability when the lessor reimbursement is received.
Where the lessor purchases the fitout directly and the lessee recognises that fitout as their controlled asset, the lessee should also recognise a corresponding increase in the lease liability.
Note 11: Fitout incentives received after commencement date
Fitout contribution incentives that remain receivable to the lessee on lease commencement must be offset against gross lease payments outstanding in calculating the initial lease liability. The incentive must be recognised as an increase in the lease liability when received.