Under IFRS 16, if a lease has no guaranteed residual or BPO, what is the FV used in the ROU calculation?

Under IFRS 16, if a lease has no guaranteed residual or BPO, what is the FV used in the ROU calculation?

• A. The guaranteed residual value
• B. The BPO
• C. 0
• D. The fair value of the asset

Answer: (C)

Under IFRS 16, the lease liability is the present value of lease payments during the lease term. Those payments include fixed payments and other payments that are reasonably certain to occur, such as amounts for residual value guarantees or a bargain purchase option. If there is no guaranteed residual and no bargain purchase option, there are no payments related to those items to include in the measurement. Therefore, the fair value (or amount) used for those components in the ROU calculation is zero. The initial ROU asset is then derived from the lease liability plus any prepayments or initial direct costs, but you do not add any value for residual guarantees or a BPO when none exist.

Under IFRS 16, the lease liability is the present value of lease payments during the lease term. Those payments include fixed payments and other payments that are reasonably certain to occur, such as amounts for residual value guarantees or a bargain purchase option. If there is no guaranteed residual and no bargain purchase option, there are no payments related to those items to include in the measurement. Therefore, the fair value (or amount) used for those components in the ROU calculation is zero. The initial ROU asset is then derived from the lease liability plus any prepayments or initial direct costs, but you do not add any value for residual guarantees or a BPO when none exist.