Lease accounting under IFRS 16, without the spreadsheet

A lease under IFRS 16 is not rent. It is an asset you control and a liability you owe, discounted, depreciated and reclassified every month: and most small-business accounting software leaves you to do that by hand.

What the standard actually asks for

On the day a lease starts you recognise a right-of-use asset and a lease liability at the present value of the payments. Then, every month, three things move: the asset depreciates, the liability unwinds as interest, and the part falling due within twelve months has to be shown separately from the rest.

None of that is difficult. It is simply relentless, and it is the sort of thing that gets done in a spreadsheet nobody else can check and that stops being updated the month somebody is busy.

What Elvira does

• Enter the term, the payment, the frequency and a discount rate. The present value, the right-of-use asset and the liability are posted for you.
• Depreciation runs on a schedule and is trued up: if a run was missed, the next one catches up rather than leaving a gap.
• The current portion is reclassified automatically, and re-measured when the lease changes.
• Correct a payment downwards and the whole liability shrinks, including a current portion measured against the old figure.
• An expense lease, ordinary rent, sits in the same register and charges straight to profit, so you are not running two systems.
• Every figure has its journal entry behind it, visible from the lease.

Try it without signing up

The free IFRS 16 lease calculator works out the liability, the right-of-use asset and the whole schedule in your browser. It uses the same method Elvira posts with, so the figures are the ones the books would carry.

The part that is easy to get wrong

Right-of-use depreciation is accumulated depreciation, but it belongs to a lease and not to the fixed asset register. Elvira checks the two separately, and its own ledger check will tell you when a lease liability and the books have drifted apart rather than waiting for an auditor to find it.