The AASB has confirmed that not-for-profit (“NFP”) entities will not be required to measure and recognise right-of-use assets at fair value for below-market (‘peppercorn leases’) leases when applying AASB 16 Leases.
The AASB has issued AASB 2018 - 8 which amends AASB 16 to permit NFP lessees to recognise those right-of-use assets for below-market or peppercorn leases, either:
1. at cost, which includes the amount of the initial measurement of the lease liability; or
2. at fair value.
This accounting policy choice is made to each class of right-of-use assets for below-market leases on initial adoption of AASB 16 and AASB 1058, as well as new leases entered into from 1 January 2019. It will assist those entities that may be having difficulty in determining the fair value of peppercorn leases by permitting them to recognise those right-of-use assets at cost. At the same time, the option allows NFPs that wish to recognise right-of-use assets for peppercorn leases at fair value to do so.
AASB 2018 - 8 also introduces additional disclosures to AASB 16 for NFP entities that elect to measure the right-of-use asset at cost.
The AASB has confirmed that these changes are only a temporary measure. The AASB intends to revisit permitting NFP entities to use the cost basis once it has developed further guidance to assist NFP entities in fair valuing right-of-use assets.
If you do have any questions, or would like any information on what these changes mean for you, please contact a Nexia Advisor.