IFRS 16 Leases Webinar – March 2016

good morning and welcome to today’s presentation on an overview of the new uses standard IFRS 16 my name is Patricia Stevens and I’ll be your host for the presentation I’m a partner in the department of professional practice a group that works with clients and KPMG teams with applying Australian and international accounting standards and other financial reporting requirements joining me are Michael Wood who is a director in the Department of professional practice and Michelle gives who is a director in our accounting advisory services group a group that works with clients to find solution in financial reporting we work closely together in guiding KPMG Australia’s thinking on how IFRS 16 will be applied before we get started there are a couple of housekeeping passes the copy of the slides along with our links to the webinar recording will be emailed to you in a couple of days as indicated we have allocated some time at the end of the presentation for questions please submit your questions during the course of the presentation we will attempt to answer all your questions but if we did not manage to get to your questions we will respond to you via email through your kpmg’s context now let’s look at the results from the polling questions from the results we could see that they are participants from a broad cross-section of Industry IFRS 16 will impact virtually every organization as every organization would have list some assets they could be computers printers cars office space and to more complex assets such as aircraft of power plants from the second poll we actually could see quite a number of you have not started to consider the implications of the new standard hopefully this presentation will give you some tips on the questions that you should be starting to consider for those of you that have started there is the range of expected impacts from significance is moderate this is actually not surprising if the impact depends on your organization for example it does depend on the size of your operating lease portfolio and the animals or the complexities of these arrangements if you have a significant list portfolio and a small amount of liabilities there was more significant the impact IFRS 16 would have on the key balance sheet financial reporting ratios after nearly 10 years of discussion the International Accounting Standards Board finally published I 5:16 in January 2016 the Australian Accounting Standards Board approved the issue of the standard in its February meeting the standard setters are actually of the view that the existing standards on leases do not provide transparent information about the obligations from leasing arrangements given this background the single biggest change is that operating leases will now be recognized on the balance sheet of a lessee I’ll Plessy will have to recognize a financial liability and a non-financial aspects for every lease transaction they are a couple of practical expediency exemption IFRS 16 exams more value items and short-term leases less of accounting however remain similar to existing practice let’s add the agenda for this presentation we’ll consider the impact of IFRS 16 on leases on lessees we’ve also spent some time on the new definition of a

least significant judgement will apply in assessing whether there is the lease the ISB has indicated there may be fewer leases under the new definition the new defining question is whether there is a lease and not whether there is an operating or financing transaction we will also work through the accounting approach for Bessie and we will look at the different transition provisions this is an important step as when you transition to iOS 16 entities can elect the transition provision that best suits them and finally we will conclude with a discussion around what are some of the things to think about as part of the assessment and interest and implementation process in applying IFRS 16 so let’s start by looking at the impacts on lefties the single biggest change that is require is that unless II must recognize all users on their balance sheet under IFRS 16 the lessee will recognise an effort a right to use and the financial liability for every lease arrangement this will result in an increase in the assets and liabilities for a lessee there is also a change in the income statement currently operating lease rental expenses are charged to the income statement on a straight-line basis over the life of the lease this is usually consistent with the payment from 1 January 2019 under the new standard operating leases will be accounted for as if the lessee had full cash to purchase and interest in an effort the least expense will now be presented as interest in depreciation expense interest is recognized on a particularly transaction will be higher during the earlier period similar to an amortizing loan this impacts the total lease expense that is recognized in the income statement the total lease expense will be higher in the earlier period of the lease what is slide and the next slide what we’ll do is illustrate the impact on both the balance sheet and the PNL offer let’s see for a single list transaction if we take for example a 5-year lease of an office building with six regular rental payments which is currently classified as an operating lease under the current standard there is no balance sheet impact however under IFRS 16 these lessee will have to recognize a non financial asset and a financial liability the non-financial assets and the financial liability would usually be equal on inception over the course of the five-year arrangement the carrying amount of the asset and a liability will decrease the carrying amount of the asset will decrease more quickly than the carrying amount of the liability what this means is that the list will be represented as a net liability on the balance sheet what’s the impact on the profit and loss these expenses will be presented in two P&L categories depreciation and interest expense the depreciation amount is

likely to be straight lines over the list terms and interest expenses decrease year by year as you could see the total this expense at the beginning of the list is going to be higher than the cash rental payment this is the reason that the new accounting model will result in a net liabilities on the balance sheet now let’s consider the impact on ratios unsurprisingly some will increase and some is going to be deeply let’s look at the PNL earnings before interest tax depreciation and amortization will increase under the new standard as the expense will no longer be presented as operating expenses except for lists of exempted items instead they will be presented as interest in depreciation conversely earning per share is going to decrease in the earlier periods this is because of these higher expenses in the earlier period of the lease an entity that has a portfolio of operating leases that has the mix of maturity termination may potentially not see a significant change on their overall earnings but the upfront higher expense recognized on a list could be significant for a new book of leasing arrangement or if you have a book of pieces that is going to expand over time so how about the balance sheet total asset is going to increase as the balance sheet will now include the right to use asset total financial liability will also increase just to reflect the amount payable under the list net assets are likely to be reduced given the net liability position that we have fun discuss the change in accounting treatment is also likely going to have a significant impact on financial ratios gearing ratios such as the debt equity will increase as there will be an increase in financial liabilities some more complex ratio is going to be impacted as well for example interest cover and effect turnover are both likely to be reduce other potential flaw and impacts include hedging regulatory and credit rating consequences there is also a potential flaw and impact on performance measures that is recognized in employees incentive schemes with that as a background I will now hand over to Michael who will take us through the new definitions of the lease and keep Patricia assessing whether an arrangement is or contains a lease will be one of the biggest practical issues when applying the new standard in effect less definition becomes the test that will determine whether an arrangement is on or off balance sheet for LSC under if R is 16 there is no longer a lease classification test subject to certain exemptions which we’ll look at later once you decide that the lease definition is met the net part of the transaction is on balance sheet for the lessee it is only the service element that remains off balance sheet for example a contract that provides the use of an operating or rig the contract includes and maintenance services provided by the lessor the right of use of the oil rig will be on balance sheet but the maintenance services will remain

off balance sheet this is very different from the current accounting under SS b-17 where the focus has traditionally been on the lease classification test and not so much on the definition of a lease the dividing line has moved from lease classification to lease definition so what is the definition of the lease at the highest level the definition seems very familiar to contract the conveys a right of use of an asset for a period of time in exchange for consideration the five main elements are present both in the old and new definitions however the new standard contains a great deal of guidance application guidance and illustrative examples around the right of use as you work through the detailed guidance a number of differences will emerge the main difference is an increased focus on whether the lessee controls the asset that is the subject of the lease under the new standard a lease will continue to be a contract that conveys the right to use an asset for a period of time in exchange for consideration however the new standard increases the focus on which party controls the use of an identified asset so the first question to address is whether the contract relates to an identified asset an asset is specifically identified if the following criteria are met the asset is specified in a contract either explicitly or implicitly the asset is physically distinct for example physically distinct portions qualify but capacity portions do not and finally the supplier does not have a substantive right to substitute yes it the supplier is substantive right to substitute an asset is substantive only if following both apply the supplier has the practical ability to substitute alternate assets throughout the period of use and the supplier gains an economic benefit from exercising its right to substitute the asset the above is broadly consistent with the considerations in the current Afric fall however the focus is now around whether the right to substitute is substantive or not a company assesses whether substitution rights are substantive at the inception of the contract at that time a company considers all the facts and circumstances but not future events that are likely to occur we will now consider whether the contract conveys a right T to control the use of the identified asset if 4/16 outlines two factors to consider the first factor does the customer or lessee pertains substantially all of the economic benefits from the use of the identified asset the second factor is does the customer direct the use of the identified asset which we’ll address on the next slide the economic minutes from benefits from using an asset include its primary output by products and other economic benefits from using the asset that could be realized from a commercial transaction with a third party these economic benefits need to be in the defined scope of the lessees right to use an asset so let’s look at an example we do Company C hinders into a 20 year contract with Power Company D to purchase all the electricity produced by a new solar farm D owns the solar farm and will receive tax credits relating to the construction and ownership C will receive renewal renewable energy credits

that accrue from use of the soul of harm Company C as the right to obtain substantially all the economic benefits from use of the solar farm as it aims the electric sort of the electricity produced by the farm over the lease term it is the primary output and the renewable energy credits that is the byproduct from use of the asset although company D receives economic benefits from the solar farm in the form of tax credits these economic benefits relate to the ownership and not use of the solar farm the tax credits do not relate to the use and therefore should not be considered as part of the assessment question to address is does the customer direct the use of the identified asset this step is somewhat an extension to what is currently set out in paragraph 9 correct for our that hat it has differences it builds on the principle of control established in universe 10 our consolidation standard and also adopted in your purse 15 the new revenue standard so what does it mean what do you consider as part of Hell and for what purpose in making this assessment the company considers the decision-making rights that are the most relevant to changing how and for what purpose the asset is used relevant in the sense that they effect the economic benefits derived from the use examples of relevant decision-making rights that grant the right to change how and for what purpose the acid is used include rights to change the type of output that is produced by the asset rights to change when the output is produced rights to change where the output is produced and rights to change whether the output is produced and the quantity of the output protective rights in isolation do not prevent the lessee from having the right to direct use examples of protective rights may include contracts that specify the maximum amount of use of an asset or where or when the asset can be used contracts that require LSE to follow particular operating policies rights to operate and rights to maintain and not examples the decision-making rights the grant the right to change how and for what purpose the acid is used so if a customer or lessee directs how and for what purpose the acid is used then the contract contains a lease at the other end of the spectrum if the supplier directs how and for what purpose the acid is used then the contract does not contain a lease it is most likely some kind of service arrangement if the hammer for what purpose decisions are predetermined to may be the case for many Arrangements then the assessment of whether an arrangement contains a lease may depend on whether the lessee has a right to operate the asset or to direct others to operate the asset in a manner that it determines throughout the period abuse without the lessor having the right to change those operating instructions for the lessee design the asset in a way that pre determines how and for what purpose the asset will be used throughout the period of use determining the most relevant decisions and cases where the decisions are predetermined will require significant judgment under the new standard based on IASB research it is their view that a number of arrangements that are currently accounted for as leases may fall outside the new definition for example an arrangement may be a lease contract

under current guidance because the customer obtains all of the assets output that does not pay a fixed or market price for each unit of output under the new definition such an arrangement would only be a lease if the customer controls the use of the identified asset consider for example a power purchase agreement in which a company agrees to acquire all of the output of a cogeneration power plant under the new definition of a lease if come you see takes all the output and also has the right to control the power plant then that’s a lease if company C takes all the output that does not have the right to control the power plant then that may will not be less this is certainly different from the conclusions that we reach today under Ifrit for similar considerations may arise in other contracts for example outsourcing and transport contracts having explored the new definition of a lease we will now look at how the accounting will work for those transactions identified as leases there are two important exemptions we release the is not required to apply the lease the accounting model the first exemption relates to short term leases that is leases with a term of 12 months or less so let’s see it can elect not to apply the new on balance sheet accounting model to these short term leases if elected the exemption is applied to all leases within the class of the underlying asset the exemption will place increased importance on the term of the lease the second exemption is police’s of low value items again if the lease is for a low value item the lessee collect not to apply the new on balance sheet accounting model the standard is not very specific about what low value means that is there is no bright line in the standard however as his exemption was being developed it seemed clear that the IASB had in its mind items with a cost of five thousand US dollars or less we knew the low value election can be made on a lease by lease basis we anticipate that these exemptions will be widely used by companies as it makes applying the new standard easier if a lessee elects either of these recognition exemptions then it recognizes the related lease payments as an expense on either a straight-line basis over the lease term or another symptomatic so systematic basis if that basis is more representative of the pattern of the lessees benefit much like an operating lease is today if a lessee elects the short-term lease exemption and there is a change in the lease term for example the lessee exercises an option that he had previously determined it was not reasonably certain to exercise all the lease is modified then the lessee accounts for the lease as a new lease these liabilities are financial liabilities however they will generally be measured in accordance with the new standard if 4:16 and not in accordance with double ASB 139 or SS b9 the financial instrument standards this will represent a considerable simplification compared with financial instruments accounting in some cases for example common features of lease agreements include renewal and purchase options and these will not be a candidate for separately nor potentially result in the

liability being measured at fair value unless they initially measures the lease liability at the present value of the lease payments discounted using the rate implicit in the lease if the rate cannot be rarely determined the lessee uses its incremental borrowing rate in principle this is like we measure a finance lease liability currently under ablaze b17 however not all terms are identical which we will explore on the next slide the assessment of the lease term is a critical estimate and a key import tman of the lease liability this is because the lease term determines which lease payments are included in the measurement of the liability after initial accounting the lease liability is meted at amortized cost using the effective interest method lessees cannot choose to measure lease liability subsequently at fair value this once again is consistent with the current treatment of Finance lease liabilities under SS b-17 what’s new is that Alesi needs to remeasure the lease liability at each reporting date to reflect changes in the lease payments the new standard contains detailed guidance on how to account for this remeasurement it will no longer be possible for companies to calculate the impact of a lease at the lease commencement date and simply roll the calculation forward with the term of the lease on our website we’ll include a number of work examples that demonstrate the impact of the new standard on the calculation of both the least liabilities and the right of use sets so what are the components of lease payments that need to be considered as part of measuring the lease liability the lease liability comprises the following fixed payments including in substance ex payments for example a minimum payment irrespective of use variable these payments but only those that relate will depend sorry on a index or rate we’ll look at those on the next slide amounts expected to be payable by the lessee and that residual value guarantees and this is different from the current standards requirement where a lessee includes the total exposure under the guarantee the exercise price of a purchase option if the lessee is reasonably certain to exercise that option and finally payments of penalties the terminating the lease if the lease term reflects the lessee exercising an option to terminate the lease so we mentioned variable lease payments what are they it depends on the nature of variability if the payment depends on an index or rate for example the consumer price index or a market interest rate then you include that amount based on the rate or index at the reporting date other forms of variable lease payments are excluded from the measurement of the lease liability for example tenant rental payments based on revenues or electricity generated by a wind farm that the lessee pays for based on usage instead these payments are recognized in the profit and loss in the period in which the event or condition that triggers those payments occurs much like contingent rentals under the current standard so how do you measure this new right of use asset if a 16 does not specify that a right of use asset is in the scope of either double ASB 1 month 6 the property plant equipment standard or double ASB 1:39 the intangible asset standard instead of the peers that the

right of use asset is a new category of asset and it’s solely within the scope of therefore 16 itself some regulators for example a pro will need to consider how this new category of asset impacts its reporting requirements additionally companies may need to consider the impact on their covenants and other similar agreements as the right abuse asset is neither defined as a tangible or an intangible asset at the commencement date Alesi measures the right abuse asset cost that includes those items listed on the slide Alessi’s initial direct costs are the incremental costs of obtaining a lease that would otherwise not have been incurred and this is consistent with the current guidance in the blaze b-17 payments that Alessi receives or makes that are related to a separate asset for example reimbursements from a lessor the leasehold improvements are not included in the measurement of the right of use asset but are accounted for separately generally Alessi measures wide abuse assets at costs less accumulated depreciation and accumulated impairment losses leases adjust the carrying amount of the right abuse asset for any remeasurement of the lease liability Alessi can apply alternative measurement basis in two circumstances if the right of use asset meets the definition of an investment property in which case it follows the guidance in SS P 140 and if a lessee applies the revaluation model to a class of property plant and equipment then it may apply the revaluation model – all right abuse assets that belong to the same class lessees will depreciate right abuse assets in accordance with the requirements of ss b16 that is the depreciation method reflects the pattern in which the future economic benefits of the right of use asset are consumed and this will often be straight-line lessees must also apply SS be 136 the impairment standard to determine whether a right of use asset is impaired and how to account for an impairment after recognition of an impairment loss the future depreciation cards for the right abuse asset are adjusted to reflect the revised carrying mm so what about the impact unless your accounting changes to less your accounting a much less significant than we have discussed from Alesi point of view vessels will continue to apply the current lease classification test and will continue to apply either finance or operating lease accounting leases the transfer substantially all the risks and rewards incidental to ownership of an underlying asset are financed looses all other leases are classified as operating losses this will result in an inconsistency and asymmetry with less safe accounting for example if a lessor has an operating lease it will still record the underlying asset on its balance sheet its PPA the lessee will now record a right of use asset and a financial liability this will add more complexity to the consolidation process when you’re limiting eliminating intra-group operating leases if the lessor is a manufacturer or dealer the guidance in the new standards is broadly consistent with the current standard so how could the newly standard impact lessels the ISB stated aim has been to minimize changes to less or accounting much of the guidance in you for 16 unless your accounting is a direct cut and paste

from the current standard this reflects feedback from users and other stakeholders that lessor accounting not broken however there are a number of changes in the details of lesser accounting for example we have already discussed the new definition of a lease this will impact both less these endless ORS alike for a finance lease the lessor will recognize an asset for the net investment in the lease this amount will be impacted by lease payments will examine on the next slide the changes to Psalm lease back transactions additionally there are some further changes we would which will not cover in today’s webinar including sub leasing arrangements and modification where the new standard provides some great detailed guidance and finally for less laws as the IASB always seems to do there will be additional disclosure requirements so how will the new standard change lessee behaviors as we have seen from the lessees perspective they will now recognize the present value of less payments over the lease term as a lease liability this ease may therefore seek to minimize these payments by structuring more variable payments that are not dependent on a rate or an index or to minimize the lease term by structuring renewal options other behavioral changes will develop over time although some of these approaches to minimizing the lease liability may appear advantageous from a financial statement presentation point of view this ease will need to understand that there are economic and business risks associated with such a projects so let’s move on to silently spec transactions the big headline is that if 416 effectively kills sale and leaseback transactions as an off-balance sheet proposition they can still remain an effective cash flow proposition if a company enters into a sale on leaseback transaction the first question to ask is whether or not the sale leg will qualify for revenue recognition in accordance with verse 15 the new leasing standard if you answer that question yes then the seller or lessee will D recognize the asset and in its place will recognize on balance sheet the lease back this will result in a right of use asset and an obligation to make lease payments conversely if you answer the sale question no and the seller will continue to recognize the asset on the balance sheet and then account for the receipt of cash as an unbalanced shiek financing transaction this could be a fair value at fair value depending on the terms of the arrangement crucially the lessor accounting PI is the same decision tree so the lessor needs to consider if the sale transaction meets the sale criteria and if it’s 15 from the lessees perspective if it does not then the buyer accounts for the cash flows as a non balance sheet financing either using the effective interest rate method or at fair value depending on the terms of the transaction so we can see that there are a number of differences between the old new lease accounting but how do you get from one to the other if they’re 16 options to get from the old standard first question is on transition how do you apply the new definition of beliefs if you’re 16 provides an important option in relation to open contracts a company can choose to apply the new lease definition to all of its lease

contracts both open and historical alternatively the company can grandfather its current assessment under SS b1 1 7 and Ifrit for for existing lease contracts it would then be required to apply the new definition I need to those contracts entered into after the date of initial adoption of the new standard this choice will be a trade-off between cost of transition and comparability of resulting information having decided which option take around the lease definition the second big issue on transition is how to apply if a 16 again Alessi can take one of two routes this Lea the new stand can be applied retrospectively to all prior accounting periods this includes restating comparatives and calculating and adjustment to opening retained earnings at the beginning of the earliest accounting period presented alternatively the company can instead apply the new standard just from the beginning of its current year this means comparatives would remain unadjusted and instead an adjustment will be made against I mean retained earnings at the beginning of the accounting period that the new standard is first applied again there is a big trade-off between cost and comparability our first impression is that loss of companies will be attracted by the low-cost options but they will need to think about how long it will take for that reduction in comparability to unwind for example it’s not uncommon for some leases to run for periods of in excess of ten years from Alessi sorry Les Halles perspective except the sub leases and song lease back transactions a lessor does not make an adjustment on transition instead of a lessor accounts for its leases in accordance with HIPAA 16 from the date of transition so when exactly does a company have to make this transition the effective date preface 16 is for accounting periods beginning on or after 1 January 2019 so begin year end and it is applies for four years ending 30 June 2020 and half years ending 31 December 2019 it is possible to early adopt the standard but only when you also adopt if it’s 15 than you revenue standard some companies will want to wait until the last minute to adopt there will be had to have some feedback where some entities may decide to adopt at the same time as they adopt the new revenue standard which effectively would mean adopting one year earlier so what should companies be thinking about now and in the transition to it 4:16 I will now hand over to Michelle Gibbs thank you Michael now that you’ve had an understanding of I 416 and some of the complexity that exists in calculating your leased assets and liabilities if you have or you’re likely to have material leases in the near future it’s time to start thinking about the impacts of I 416 will have to your company so listed on this page here are some of the questions to start considering so do you know which of your arrangements contain a lease so with the revised definition of the lease some arrangements not previously accounted for as a lease may be captured by i4x 16 and now some Arrangements may fall outside the definition so therefore you may want to consider whether as there is any advantage in entering into arrangements before or after the adoption of IFRS 16 now I first extent includes several transition options it will be important to weigh up the advantages and disadvantages of each option in respect to the impact this might have on your financial statements on transition and also the cost and efforts of each option do you know what is the population of your leases many companies do not currently have a system to record all their operating leases and so it might be quite a big exercise to actually find all those operating leases that could be hiding in somebody’s

drawer it’s also fun to know that currently no existing systems and processes today can actually cater for the new lease accounting requirements with the existing requirement to continually remeasure the leases if you have certain terms such as options and periods and the variable rents so you’ll need to find out from your software provider if you do actually have a system today whether they are we updating the system for new I for 16 requirements or if you’re just using an Excel spreadsheet and you have quite a number of operating leases with some complexity in them around these three measurement requirements so you might look to have having a more robust system put in place so it’s it’s time now to have a think about the impact of is 16 on your company so we all know that the operating leases and coming on to balance sheet so what does that mean to your P&L your you and your fellow under financial metrics from that what does that means your debt arrangements so given the sound isn’t applicable into January 2019 I would recommend that as commercial arrangements come up for renewal you take into the climate survivor at sixteen and think about potential structural changes to those terms to reduce the impact so today the headlines evolving about the impact I for sixteen will haves your balance sheet because you now need to recognize new assets and liabilities so not only is there an impact to your balance sheet but there’s also a broader impacts your business and I’ve listed on this page a number of the different divisions within a company that might be affected so in terms of the processes and system so if your finance procurement and asset management departments do you currently have systems that identify or record capture your leases are they going to meet the requirements RS 16 and if you are looking at actually designing or implementing a new system to cater for Ifrah 16 what other I guess additional functionality is you need that system to have that might satisfy and improve your existing procurement and asset management systems and some considerations will be around how how does that system feed into the general ledger in the cash payment system pH finance Treasury and HR departments obviously the gross up of the balance sheet for your leased asset liability in the changing profile of lease expense to below eva’dur will need to be understood and what does that mean to various key financial metrics and what does that number then perhaps need to change to so where you’ve got Treasury and HR departments the growth up of the balance sheet and changing this profile and geography to below eva’dur will need to be understood to determine where the key financial metrics will need to be changed and to what number so this may include management KPIs might be linked to management remuneration schemes your thing to think about the impact this will have on tax effect accounting balances and metrics in terms of any lending arrangements so your existing debt covenants ratios and undertaking the gross upper bleachers on your balance sheet how is that going to flow on to those terms how are your bank deal with that so for the Investor Relations departments bringing all these leases onto your balance sheet grossing up the balance sheet how would this be appropriately reflected to the market to your analysts as the last thing we’d want to do is have an impact or a negative impact to your credit rating so emotion to any procurement strategy is leasing still an effective form of financing maybe if it’s all on balance sheet I should just buy the asset now so all those questions will need to be going to sort through and answered and what does that mean for my OPEX and capex processes and the approvals a lot of people you know will potentially need to look at changing their approval levels if all leases are coming on balance sheet and it’s now captured under the cat exciting process I will stress however that the economics alysom remain unchanged so the fact that these leases are now coming on to the balance sheets it’s still actually less of an impact to the balance sheet than owning the asset outright and given the other term of the lease may be less than the life of the asset and often the lessee less or rather will take on the residual risk so CFO advisory is a division with Kate within KPMG that specializes in working with clients to help them understand the requirements of IFRS 16 and the impact this may have to their business we have been and can help you prepare impact assessments and your communication strategies we can help you look at structural solutions to reduce the impact such as looking at off-balance sheet financing financing arrangements which look at structuring financing arrangements outside the Lisa standard as an executory contract we can also help you look at your current

environment and do a current state assessment of your existing processes and controls and identify gaps and possible solutions to help you apply IFRS 16 and of course then we’ve got several years of experience in working with clients to implement new processes and systems and systems and with our knowledge of Rs 16 we’ll be happy to help at 6:00 we are looking at a number of leasing software packages in the moment at the moment and working with several of them to actually help develop innovative and simple solutions to help you calculate your leased assets and liabilities so that will actually help you handle all the reassessment requirements as well so please would have looked at that space in the future so again if you would like to reach out and talk to one of our specialists regarding Ifrah 16 and what does this mean for your business to help you understand that and to understand how we can help you please feel free to reach out to myself Nichelle Gibbs or one of your local KPMG contacts I will now hand back to Patricia thank you Thank You Michelle and I hope this webinar has provided the view with an increased understanding of the new standard and insights the potential business impact let’s look at some of the questions that have been coming in we have actually received quite a number of questions and we would not be able to answer all of them but I let look at some of the common ones there are three key compressions the first one is around what is for example you have an arrangement to leave slips their 2000 laptops each one of them will cost you about two thousand but from an aggregate point of view it would exceed five thousand so with the small value exemptions apply in this example as Michael has indicated and the small value exemption applied to individual items so in this particular example because each computer would cross around two thousand they would fall within the exemption there for you u.s. embassy would not have to recognize at least liabilities nor a leased asset the other question that has come up quite a number of time is that how does the leasing standard affect if you have lives a retail space or or an office space as long as the term of the lease is more than a year you would have to recognize a lease liability and this asset and the MD lease liability and the leased asset that you would recognize that inception of that arrangement is what michael has taken us through that is the present value of the future payment as per the arrangement another one is around and does this standard apply to simple leases that’s the term that has been used for example if you enter the arrangement to leave them photo copiers and Printers again the the standard would apply if the individual item is just not full within the exemption and what I mean by that is that if individually a photo copier or printer and is is is would cost more than five thousand so if that is the case and if the term of the list is more than a year then the leasing standard would apply and you would have to recognize at least lively T and at least effort that’s all we’ve got time for because then we’ll we one go through what are the key points to remember and and and given that there are quite a few questions what we will do is actually get back to you as indicated earlier by your KPM give context so where we are now is that we have to at the end of today’s that presentation and I think given the number of questions that have come in I hope that it has provided you with some insights as to the application of this new standard as we have indicated right from

the beginning this standard would impact almost every entity I think while the questions that have come in I think some of you probably with are still thinking does it impact me so I suppose if you have got if you have entered if you organization has entered into a reasoning arrangement for cars or property space photo copiers and Printers you need to consider how this standard will impact the accounting for those arrangement I hope that for the reasons that we have outlined throughout the presentation and you have an appreciation that if you if you are an entity that has an operating lease portfolio you should start thinking about the potential impact of these particular standards some the question has come in is that was the impact from our income tax perspective where it’s accessible and what is them deductible and the things constrictive there are many flow-on implications so as we have indicated the tax implication is something to consider regulatory implications is something else that you would have to consider and I suppose them this is just an overview of the standards what we will be doing over the next 12 to 18 months is actually providing additional training and guidance so if you are interested in this particular standard you inform your KPMG contact and them what we’ll do is make sure that we are included in in any external discussion that we’ll be holding so we have come to the end of the presentation we would actually appreciate if you could take some time to complete this survey because any feedback that you can provide us will actually ensure that going forward and we can tailor the content of the presentation that would actually better suit your requirements so thank you for your time with that I’ll hand it back to in the cool