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PSAK 73 Leases PwC
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At a glance, In 2017 the Indonesian Financial Accounting Standards Board DSAK IAI issued PSAK. 73 Leases and thereby started a new era of lease accounting for lessees Whereas. under the previous guidance in PSAK 30 Leases a lessee had to make a distinction. between a finance lease on balance sheet and an operating lease off balance sheet. the new model requires the lessee to recognise almost all lease contracts on the. balance sheet the only optional exemptions are for certain short term leases and leases. of low value assets For lessees that have entered into contracts classified as operating. leases under PSAK 30 this could have a huge impact on the financial statements. At first the new standard will affect balance sheet and balance sheet related ratios. such as the debt equity ratio Aside from this PSAK 73 will also influence the income. statement because an entity now has to recognise interest expense on lease liabilities. obligations to make lease payments and depreciation on right of use assets assets. that reflects the right to use the leased asset As a result for lease contracts previously. classified as operating leases the total amount of expenses at the beginning of the. lease period will be higher than under PSAK 30 Another consequence of the changes. in presentation is that EBIT and EBITDA will be higher for companies that have material. operating leases, The new guidance will also change the cash flow statement Lease payments that. relate to contracts that have previously been classified as operating leases are no. longer presented as operating cash flows in full Only the part of the lease payments. that reflects interest on the lease liability can be presented as an operating cash. flow depending on the entity s accounting policy regarding interest payments Cash. payments for the principal portion of the lease liability are classified within financing. activities Payments for short term leases leases of low value assets and variable lease. payments not included in the measurement of the lease liability remain presented within. operating activities, Although accounting remains substantially the same for lessors the changes made. by the new standard are still relevant In particular lessors should be aware of the. new guidance on the definition of a lease subleases and the accounting for sale and. leaseback transactions The changes in lessee accounting might also have an impact on. lessors as lessee s needs and behaviours change and they enter into negotiations with. their customers, For both lessees and lessors PSAK 73 adds significant new enhanced disclosure. requirements, At a glance 1, Identifying a lease 4.
Lessee accounting 13, Lessor accounting 23, Sale and leaseback transactions 25. Transition 27, Appendix 29, Disclosure requirements for lessees 29. Disclosure requirements for lessors 30, Comparison of PSAK 73 and PSAK 30 ISAK 8 31. Impact on lessee s key performance indicators 33, PSAK 73 will apply to all lease contracts except for. leases to explore for or use minerals oil natural gas and similar non regenerative. leases of biological assets within the scope of PSAK 69 Agriculture held by. service concession arrangements within the scope of ISAK 16 Service Concession. Arrangements, licences of intellectual property granted by a lessor within the scope of PSAK 72.
Revenue from Contracts with Customers and, rights held by a lessee under licensing agreements within the scope of PSAK 19. Intangible Assets for items such as motion picture films video recordings plays. manuscripts patents and copyrights, Aside from this a lessee may choose to apply PSAK 73 to leases of intangible assets. other than those mentioned above, 3 PSAK 73 Leases. Identifying a lease, Definition of a lease, PSAK 73 defines a lease as a contract or part of a contract that conveys the right to use an asset the underlying. asset for a period of time in exchange for a consideration At first sight the definition looks straightforward But. in practice it can be challenging to assess whether a contract conveys the right to use an asset or is instead a. contract for a service that is provided using the asset. For example an entity might want to transport a specified quantity of goods in accordance with a stated timetable. for a period of five years from A to B by rail To achieve this it could either rent a number of rail cars or it could. contract to buy the transport service from a freight carrier In both cases the goods will arrive at B but the. accounting might be quite different, PwC Observation.
In future there is likely to be a greater focus on identifying whether a contract is or contains. a lease given that all leases except short term leases and leases of low value assets will be. recognised on the balance sheet of the lessee, Currently many companies that have contracts which include both an operating lease and a. service do not separate the operating lease component This is because the accounting for an. operating lease and a service or supply arrangement is the same that is there is no recognition. on the balance sheet and straight line expense is recognised in profit or loss over the contract. Under the new standard the treatment of the two components will differ A lessee may decide as. a practical expedient not to separate non lease components services from lease components. by class of underlying asset If the lessee decides to apply this exemption each lease component. and any associated non lease component is accounted for as a single lease component So the. service component will either be separated or the entire contract will be treated as a lease. Leases are different from service contracts a lease provides a customer with the right to control the use of an asset. whereas in a service contract the supplier retains control. PSAK 73 states that a contract contains a lease if. there is an identified asset and, the contract conveys the right to control the use of the identified asset for a period of time in exchange for. consideration, PSAK 73 Leases 4, What is an identified asset. An asset can be identified either explicitly or implicitly The assessment whether a substitution right is. If explicitly the asset is specified in the contract for substantive depends on the facts and circumstances. example by a serial number or a similar identification at inception of the contract and does not take into. marking if implicitly the asset is not mentioned in the account circumstances that are not considered likely. contract so the entity cannot identify the particular to occur. asset but the supplier can fulfil the contract only by the. use of a particular asset In both cases there may be an A right to substitute an asset if it is not operating. identified asset properly or if there is a technical update required. does not prevent the contract from being dependent. In any case there is no identified asset if the supplier on an identified asset The same is true for a. has a substantive right to substitute the asset supplier s right or obligation to substitute an. Substitution rights are substantive where the supplier underlying asset for any reason on or after a particular. has the practical ability to substitute an alternative asset date or on the occurrence of a specified event. and would benefit economically from substituting the because the supplier does not have the practical. asset ability to substitute alternative assets throughout the. period of use, The term benefit is interpreted broadly For example. the fact that the supplier could deploy a pool of assets If the customer cannot readily determine whether. more efficiently by substituting the leased asset from the supplier has a substantive substitution right it is. time to time might create a sufficient benefit as long as presumed that the right is not substantive that is that. there are no significant costs It is important to note that the contract depends on an identified asset. significant is assessed with reference to the related. benefits that is costs must be lower than benefits it. is not sufficient if the costs are low or not material to. the entity as a whole Significant costs could occur. in particular if the underlying asset is tailored for use. by the customer For example a leased aircraft might. have specific interior and exterior specifications defined. by the customer In such a scenario substituting, the aircraft throughout the lease term could create.
significant costs that would discourage the supplier. from doing so, 5 PSAK 73 Leases, Portion of an asset. An identified asset can be a physically distinct portion of a larger asset such as one floor of a multi level building or. physically distinct dark fibres within a cable, A capacity portion that is a portion of a larger asset that is not physically distinct is not an identified asset unless. it represents substantially all of the capacity of the entire asset So for example a capacity portion of a fibre optic. cable that does not represent substantially all of the capacity of the cable would not qualify as an identified asset. When does the customer have the right to control the use of an identified asset. A contract conveys the right to control the use of an identified asset if the customer has both the right to obtain. substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the. identified asset throughout the period of use, Substantially all of the economic benefits from use of the asset throughout the period of. Economic benefits can be obtained directly or indirectly for example by using holding or subleasing the asset. Benefits include the primary output and any by products including potential cash flows derived from these items. as well as payments from third parties that relate to the use of the identified asset Economic benefits relating to the. ownership of the asset are ignored, The example below illustrates under which circumstances payments from third parties should be taken into account. A customer rents a solar farm from the supplier The supplier receives tax credits relating to the. ownership of the solar farm whereas the customer receives renewable energy credits from the use of. In this scenario only the renewable energy credits are taken into account in the analysis because the. tax credits relate not to the use of the solar farm but instead to ownership of the asset. Right to direct the use of an asset throughout the period of use. When assessing whether the customer has the right to direct the use of the identified asset the key question is which. party that is the customer or the supplier has the right to direct how and for what purpose the identified asset is. used throughout the period of use, The standard gives several examples of relevant decision making rights.
Right to change what type of output is produced, Right to change when the output is produced. Right to change where the output is produced, Right to change how much of the output is produced. The relevance of each of the decision making rights depends on the underlying asset being considered If both. parties have decision making rights an entity considers the rights that are most relevant to changing how and for. what purpose the asset is used Decision making rights are relevant when they affect the economic benefits to be. derived from the use of the asset, PSAK 73 Leases 6. To illustrate the concept the table below provides some questions to consider when evaluating which party has the. relevant decision making rights, Which party decides. Lease of truck aircraft Which goods are transported. rail cars etc When the goods are transported and to where. How often the asset is used, How full it needs to be run.
Which route is taken, Fibre optic cable When and whether to light the fibres. When and how much data the cable will transport, How to run the cable. Through which routes the data will be delivered, Retail unit Which goods will be sold. The prices at which the goods will be sold, Where and how the goods are displayed. Power plant How much power will be delivered and when. When to turn the power plant on and off, However there are several rights that are not taken into account.
Protective rights In many cases a supplier might limit the use of an asset by a customer in order to protect its. personnel or to ensure compliance with relevant laws and regulations for example a customer who has hired a. ship is prevented from sailing the ship into waters with a high risk of piracy or transporting hazardous materials. These protective rights do not affect the assessment of which party to the contract has the right to direct the. use of the identified asset, Maintaining operating the asset Decisions about maintaining and operating an asset do not grant the right. to direct the use of the asset They are only taken into account if the decisions about how and for what purpose. the asset is used are predetermined see below, Decisions made before the period of use Decisions made before the period of use are not taken into. account unless they are made in the context of the design of the asset by a customer see below. In some scenarios the decisions about how and for what purpose the underlying asset is used are already. predetermined before the inception of the lease If this is the case the customer has the right to direct the use of an. PSAK 73 defines a lease as a contract or part of a contract that conveys the right to use an asset the underlying asset for a period of time in exchange for a consideration At first sight the definition looks straightforward But in practice it can be challenging to assess whether a contract conveys the right to use an asset or is instead a contract for a service that is provided

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