Right-of-Use Assets of Not-for-Profit Entities

The Australian Accounting Standards Board (AASB) has issued AASB2018-8 Amendments to Australian Accounting Standards – Right-of-Use Assets of Not-for-Profit Entities to provide a temporary option for not-for-profit lessees to measure a right-of-use asset arising under “concessionary leases” at initial recognition.

Concessionary leases have been defined as those leases that have significantly below-market terms and conditions principally to enable an entity to further its objectives. The amending Standard allows an entity to choose between continuing with the cost method or adopting the fair value approach to account for such leases.

The news is likely to be welcomed by a number of not-for-profit entities who had raised concerns around the difficulty and time required in determining the fair value of right-of-use assets arising under concessionary leases, as well as the associated impact on the presentation of financial statements.

The amending Standard is effective for annual periods beginning on or after 1 January 2019, which is the effective date of AASB 16 Leases and AASB 1058 Income of Not-for-Profit Entities. The optional relief will be reassessed when further guidance has been developed to assist not-for-profit entities in fair valuing right-of-use assets and the financial reporting requirements for private sector not-for-profit entities have been finalised.

The AASB’s press release can be found here.

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