19RU-001: Right-of-use assets of not-for-profits

19RU-001: Right-of-use assets of not-for-profits

The AASB issued an Amending Standard providing a temporary option for not-for-profit lessees to measure a class of right-of-use assets arising from the application of the new leases standard at either fair value or cost. The effective date is 1 January 2019, the same application date as AASB 16 Leases and AASB 1058 Income of Not-for-profit Entities.


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Options for measurement basis of certain right-of-use assets

The AASB issued AASB 2018-8 Amendments to Australian Accounting Standards – Right-of-Use Assets of Not-for-Profit Entities providing a temporary option for not-for-profit (NFP) entities to measure a class or classes of right-of-use (ROU) assets arising from the application of the new leases standard, AASB 16 Leases, to ‘peppercorn’ or concessionary leases* at:

  • fair value in accordance with AASB 13 Fair Value Measurement; or
  • cost in accordance with AASB 16, which would incorporate the measurement of the lease liability. 

*A ‘peppercorn’ or concessionary lease is a lease that has significantly below-market terms and is principally for the NFP to further its objectives.

AASB 1049 Whole of Government and General Government Sector Financial Reporting has also been amended to provide a temporary option for governments to measure a class or classes of ROU assets at fair value or at cost.

The option applies both on transition to AASB 16 and for new leases entered into after initial application of the standard.

Disclosures where measure right-of-use asset at cost

Where the NFP entity chooses to measure the ROU asset at cost, it discloses additional qualitative and quantitative information necessary for users of the financial statements to assess the effect that such leases have on the financial position, financial performance and cash flows of the lessee. This would include disclosure of:

  • the entity’s dependence on leases that have significantly below-market terms and conditions principally to enable the entity to further its objectives; and
  • the nature and terms of the leases, including:
    • the lease payments;
    • the lease term;
    • a description of the underlying assets; and
    • restrictions on the use of the underlying assets specific to the entity.

Effective date and duration of option

Effective date

The amendments apply for financial years beginning on or after 1 January 2019 (with earlier application permitted, provided that AASB 1058 Income of Not-for-profit Entities is also applied at the same time) – the same application date of AASB 1058 and AASB 16.

Duration of option

The AASB has not set a timeline for removing the temporary option. The AASB has indicated it will consider a permanent option at a later time.


When AASB 1058 was issued in December 2016, Australian-specific paragraphs were inserted to AASB 16. These paragraphs require a NFP lessee to measure a right-of-use asset at fair value (in accordance with AASB 13) where the lease is at significantly below-market terms and principally for the NFP to further its objectives (a ‘peppercorn’ lease).

The AASB received feedback from stakeholders of the challenges in the practical application of fair valuing such right-of-use assets. The AASB therefore decided to provide temporary optional relief from this requirement as further guidance is expected to be developed to assist not-for-profit entities in measuring right-of-use assets at fair value.

In addition, as a result of future recommendations stemming from the ACNC Legislative Review, NFP private sector entities at the lower level of reporting thresholds, may not need to apply the AASB 16 fair value measurement of the right-of-use asset requirement. The temporary option would therefore also avoid the fair value initial measurement requirement for such assets when they might not need to apply these requirements in the future.

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