Service Agreement Ifrs 16

One observation of this new definition is that IFRS 16 does not define « services, » but, as a Deloitte spokesperson pointed out, this should not create significant confusion: service contracts should not be capitalized from the balance sheet, but a taker may choose not to separate the service elements from the lease and instead consider the entire contract as a lease. It is expected that entities will choose this option only if the service components of the contracts are small or if they cannot simply distinguish the values. Under the current IAS17, financing leases are recorded on the balance sheet, while operating leases and service contracts are off-balance sheet. As of January 1, 2019, IFRS 16 requires the registration of financing and operating leases on the balance sheet, while service contracts continue to be recorded off-balance sheet. The standard provides for certain exceptions, such as leases. B for less than one year and low-value leases. Given that the accounting of leases under IFRS 16 results in the fact that all leases are essentially accounted for on a taker`s balance sheet, the assessment of whether a contract is (or includes) a lease becomes even more important than according to IAS 17 and IFRIC 4. In practice, the main impact will be on contracts that do not behave in the form of a lease agreement, but which could include the use of a particular asset and could therefore include a lease- such as outsourcing, contract manufacturing, transmission and electricity agreements. Currently, this assessment is based on IFRIC 4; However, IFRS 16 replaces IFRIC 4 with new guidelines that differ on some important points. The distinction is very important because some contracts currently considered leases are now recognized as service contracts under IFRS 16 and vice versa. Contracts considered leases are activated on the balance sheet, with the amortization of ROU assets being recorded separately and the lease debt being recorded separately.

This requires companies to audit all their contracts for goods and equipment to determine if they contain a leasing element in accordance with the new accounting rules.

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