Document ID: chunk:federal_register_of_legislation:F2023C00188:reg:7:p66
Version: federal_register_of_legislation:F2023C00188
Segment Type: reg
Provision Reference: reg 7 (pt 66/91)
Character Range: 188038–191086

the leased asset.  Constituents questioned the application of the requirements, observing in particular:

(a)                    applying the amendment would result in equal measurement of the asset and the liability associated with the finance lease.  A residual amount would never arise and therefore no income would be recognised in accordance with AASB 1058;

(b)                   the lease asset in a finance lease represents the right to use that asset for the lease term and therefore measuring it with respect to the leased property would not accurately reflect the economic benefits arising from the lease; and

(c)                    the lease liability would not reflect an entity's ongoing obligations in respect of the lease if measured with reference to the fair value of the leased property.

BC83            The Board agreed with constituent concerns, noting that it intended for the amendment to reflect the objective of AASB 1058.  Consequently, the Board revised the amendment to require:

(a)                    the lease asset be measured with reference to the right to use the underlying asset in accordance with the terms and conditions of the lease;

(b)                   the lease liability be measured in accordance with the applicable Standard; and

(c)                    any residual amount be accounted for in accordance with AASB 1058.

BC84            The Board observed that AASB 16 Leases would require amendment in addition to AASB 117.  In this respect the Board noted that AASB 16 measures the right-of-use asset with reference to the lease liability.  The Board noted that where an entity enters into a lease with below-market terms and conditions it is unlikely that the lease liability would reflect an appropriate starting point to measure the right-of-use asset and accurately reflect the substance of the lease transaction.  Consequently, the Board decided to specify that the right-of-use asset be initially measured at the fair value of the right to use the underlying asset in accordance with the terms and conditions of the lease.  This Standard does not require that right-of-use asset to be subsequently measured at fair value – the subsequent measurement requirements that apply are specified by other Australian Accounting Standards.

BC85            The Board noted that leases with below-market terms and conditions were of particular interest for constituents and therefore decided to specifically identify them in the examples of related financial statement elements that could arise from a transaction within the scope of AASB 1058.

Transactions involving financial instruments

BC86            The Board observed a transfer of a financial instrument (or a net transfer of financial instruments) to a not-for-profit entity may include an element of assisting the not-for-profit entity to achieve its objectives, for example in the form of a below-market interest rate on the financial instrument.  When developing the proposals for ED 260 the Board noted:

(a)                    paragraph