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HKFRS 16 Lease

HKFRS 16 is effective for annual periods beginning on or after 1 January 2019. Earlier application is permitted provided HKFRS 15 Revenue from Contracts with Customers is also applied. If an entity applies HKFRS 16 before its effective date, it shall disclose that fact.

At its effective date, HKFRS 16 supersedes the following Standards and Interpretations:

  • HKAS 17 Leases;

  • HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease;

  • HK(SIC)-Int 15 Operating Leases— Incentives; and

  • HK(SIC)-Int 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The update also highlights that HK-Int-4 Leases – Determination of the Length of Lease Term in respect of Hong Kong Land Leases will be withdrawn on 1 January 2019.

Lessee accounting


HKFRS 16 eliminates the distinction between operating and finance leases for lessee accounting and introduces a single accounting model that requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.


A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

A lessee measures right-of-use assets similarly to other non-financial assets (such as property, plant and equipment) and lease liabilities similarly to other financial liabilities. As a consequence, a lessee recognises depreciation of the right-of-use asset and interest on the lease liability, and also classifies cash repayments of the lease liability into a principal portion and an interest portion and presents them in the statement of cash flows applying HKAS 7 Statement of Cash Flows.

Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease.

Lessor accounting


Lessor accounting however remains largely unchanged and the distinction between operating and finance lease is retained. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.



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