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IFRS 16 – Lease payments

IFRS 16 – Lease payments

Determining the lease liability

Brian O'Donovan

Partner, IFRG

KPMG International


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Which lease payments are included in the lease liability will determine the scale of the impact for lessees.

Which lease payments should be included in the lease liability?

IFRS 16 Leases requires lessees to bring most leases onto the balance sheet. The lease liability is measured at the present value of the lease payments. But which lease payments should be included in the lease liability, initially and subsequently?

The answer to this question will determine the scale of the impact of the new standard for lessees. 

Our publication Lease payments (PDF 1.7 MB) will help you. It provides an overview of how to determine the lease payments, initially and subsequently. 

Lessees: Changes in practice

In many ways, the new requirements are mercifully simple – e.g. lessees do not need to forecast future payments that depend on sales, usage or inflation.

However, the detailed rules are different from current practice in important ways.

One key difference is that certain lease payments are reassessed over the term of the lease, and the lease liability adjusted accordingly. This introduces new balance sheet volatility. 

It also requires new systems and processes to determine the revised lease payments and recalculate the lease liability.

Lessors: Allocating consideration

The new standard has a less dramatic impact on lessors. 

For them, a key focus will be allocating the consideration in contracts with multiple components to determine the lease payments. This will sometimes be a disclosure-only question, but those disclosures could be sensitive for some lessors.

Find out more

Our Lease payments (PDF 1.7 MB) publication provides an overview of how to determine the lease payments, initially and subsequently, with lots of worked examples to help you prepare to adopt the new standard.

Visit our IFRS – Leases hot topics page for more insight on lease accounting under IFRS.

Follow 'KPMG IFRS' on LinkedIn for the latest on IFRS.

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