Jan 10, 2019 / News

Financial Reporting

Relief from fair valuing ‘peppercorn leases’ confirmed

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. 

Next Steps 

If you do have any questions, or would like any information on what these changes mean for you, please contact Jamie Dreckow or your Nexia Edwards Marshall Advisor. 

The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.