How should lessors account for operating lease straight-line rentals and lease incentive assets after initial recognition?

In August 2020 Accounting Alert , we answered various questions on the accounting by lessors for COVID-19 impacts on operating leases (including modifications) and finance leases.

Changes to FAQ 1.2

BDO’s IFRB 2020 12 Implications of COVID-19 for Lessors (IFRS 16) was updated in December 2020 to expand the scope of FAQ 1.2, which deals with subsequent accounting by lessors for lease receivables.

FAQ 1.2 now covers the accounting for three types of assets recognised in the statement of financial position of lessors in operating lease arrangements:

  1. Lease payments currently receivable (lease receivables)
  2. Assets arising from ‘smoothing’ or straight-lining operating lease income due to variability in periodic cash payments (e.g. where there is a rent-free period, or fixed price escalations), and
  3. Assets arising from ‘smoothing’ operating lease income due to upfront payments from lessors to lessees (e.g. for lease incentives).

The original FAQ 1.2 only discussed the IFRS 9 ECL requirements for lease receivables (refer above). It now also covers the subsequent accounting for straight-line rental assets and lease incentive assets. While it is not clear whether the IFRS 9 ECL requirements apply to these additional items because they are not ‘financial assets’, updated FAQ 1.2 notes that the IFRS 9 ECL requirements can nevertheless be applied if analogising to the IFRS 15 requirements for contract assets. This is because the IFRS 9 ECL requirements also apply to contract assets recognised under IFRS 15. However, alternative approaches may be acceptable.


For more on the above, please contact your local BDO representative.


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