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Lazy Coffee: Accounting for Leases

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A new accounting standard, IFRS 16 Leases, has come into effect on 1 January 2019. The new standard introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months (except for low value underlying asset). The IFRS 16 introduces on lessee’s account the “right-of-use” asset to represent its right to use the underlying leased asset and the “lease” liability to represent its obligation to make lease payments. 

The purpose of the case is to introduce IFRS 16 and illustrating its effect and the differences on treatments of leases compared with IAS 17. 

The case features a coffee company called Lazy Coffee. Readers take on the role of Jan Lo, the Financial Controller of the Company, who is closing the accounts of 2019 and retrospectively restating the figures of 2018 to reflect IFRS 16. Jan is also required to prepare detailed discussion on the application, implications and impact of changes in the accounting policy.

 

Learning Objective:

The key concepts conveyed in the case include the accounting treatment of leases, where a lessee should recognise assets and liabilities arising from a lease. The objective is to provide information for users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

 

Year of Publication: 2020
Ref. No.: 20/670C
Discipline: Accounting & Control
Industry: Food, Beverage & Tobacco, Hotels, Restaurants, Leisure
Country: China (People's Rep. of), Hong Kong SAR
Company: N/A
Languages: English
Pages of Text: 4