(See Deloitte’s A Roadmap to Applying the New Leasing Standard for further discussion of the effective date and transition guidance in ASC 842.) Present value of expected payments at end of lease. 5.1 Disclosures under the full retrospective approach 34 5.2 Disclosures under the modified retrospective approach 43 5.3 Transition disclosures in interim financial statements in the ... that leases have on the financial position, financial performance and cash Lease liability ROU asset Equity Dollar value Full retrospective approach Modified retrospective When adopted, the new leasing guidance may have the largest-ever impact of a new accounting standard in terms of gross dollars on the balance sheets of lessees. Full retrospective application isn’t permitted. FASB is requiring lessees and lessors to apply a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest period presented in the financial statements. Instead the cumulative impact of applying IFRS 16 is accounted for as an adjustment to equity at the start of the current accounting period in which it is first applied, known as the ‘date of initial application’. The standard also permits an approach where comparative amounts are not restated, and instead, an adjustment is made to retained earnings, which represents the difference between the balance sheet under the previous standard and the balance sheet under the new standard. Present value of Lease liability = remaining rentals + Discount rate = lessee’s incremental borrowing rate at : initial application. ASC 842 originally required all entities to use a “modified retrospective” transition approach that is intended to maximize comparability and be less complex than a full retrospective approach. FASB is prohibiting full retrospective transition. Each of these choices can be made on an individual lease-by-lease … Modified retrospective approach. Retrospective application but: • Do not restate comparatives (See Deloitte’s A Roadmap to Applying the New Leasing Standard for further discussion of the effective date and transition guidance in ASC 842.) Modified Retrospective Approach. Companies are allowed to elect the modified retrospective approach or the alternative-modified retrospective approach, as detailed below. the modified retrospective approach If the modified retrospective transition method is chosen, there are further policy decisions which need to be made for those leases previously accounted for as operating leases under IAS 17. The effect of this method must be disclosed. Modified retrospective - Lease liability. The modified retrospective approach does not require restatement of comparative periods. The Board kept the modified retrospective approach set out in the current version of ASC 842. The results of applying the full retrospective approach or the modified retrospective (Option A) approach could be the same in certain circumstances such as when the discount rate at contract inception and at date of initial application is the same. The modified retrospective approach would not require any transition accounting for leases that have expired prior to the earliest period presented. Lease liability under the modified retrospective approach Upon transition to IFRS 16 and using modified retrospective approach, ABC will measure the lease liability as the present value of the lease payments not paid at the date of adjustment , discounted using the discount rate applicable at the date of initial application (here 2.5%). ASC 842 originally required all entities to use a “modified retrospective” transition approach that is intended to maximize comparability and be less complex than a full retrospective approach. ... or consider the effects of each modification for leases that were modified more than once during the comparative period presented.

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