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AASB 16 Check: Any impacts on lessees’ cash flow statements?

AASB 16 Check: Cash flow statement impacts for lessees

A lot of the focus on implementing the new leases standard has been around the recognition on the balance sheet and the change in the nature of the expenses recognised in the statement of profit or loss. While the amount of cash payment will not change, the classification of the amounts in the cash flow statement could change. Here we respond to the common question we are hearing on the classification of cash payments for lessees in the statement of cash flows, under AASB 16 Leases.

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AASB 16 Leases: Flow on impacts and disclosures infographic

Scenario

Let’s pose a scenario that a company has four lease arrangements:

  • Leases five floors in an office building. Lease payments are $1,000,000 per year – for the current year, based on the amortisation schedule, $995,000 is for reducing the lease liability and $5,000 is the interest portion. 
  • Rents two cars for use by employees. Rental payments are variable and based on kilometres travelled. Rental payments for the year are $40,000.
  • Hires two buses for three-months and applies the short-term exemption for these leases. Payments for the hire of the buses amounted to $30,000 for the year.
  • Embedded leases of laptops for its employees as part of an IT service arrangement. The company applies the low-value lease exemption to the laptop leases. Payments relating to these low-value leases are $75,000 per annum.

Question: How are the various lease payments classified in the statement of cash flows?

Interpretive response: Following the adoption of AASB 16, there are flow on impacts to the classification of lease payments in the statement of cash flows. The underlying lessee accounting model has changed and this, together with the explicit requirements in the standard (see “In technical speak” below) mean that entities need to reconsider the classification of lease payments. 

For the office space lease, the amount allocated - $995,000 - for the repayment of the principal portion is included in cash outflows of financing activities.

Consistent with the company’s existing policy of classifying interest paid in the cash flow statement, cash payment for the interest portion - $5,000 - of the office lease liability is presented either as operating or financing activities.

However, variable lease payments, amounts paid for low-value leases and short-term leases that are not capitalised as part of lease liability are included in cash outflows of operating activities. The company includes a total of $145,000 in cash outflows of operating activities.

In technical speak

In the statement of cash flows, a lessee shall classify:

(a) cash payments for the principal portion of the lease liability within financing activities

(b) cash payments for the interest portion of the lease liability applying the requirements in AASB 107 Statement of Cash Flows for interest paid; and

(c) short-term lease payments, payments for leases of low-value assets and variable lease payments not included in the measurement of the lease liability within operating activities [AASB 16: 50].


If you would like to discuss the implementation of the new standard for your organisation, please contact us.

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KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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