AASB clarifies what is meant by ‘class of ROU asset’ for concessionary (peppercorn) leases

In order to comply with AASB 1049 Whole of Government and General Government Sector Financial Reporting, subsequent to initial recognition, public sector entities are required to measure right-of-use (ROU) assets at fair value, even though AASB 16 Leases permits ROU assets arising from peppercorn lease arrangements to be measured at ‘cost’.

Public sector entities therefore requested clarification from the Australian Accounting Standards Board (AASB) as to whether ROU assets arising under concessionary leases (peppercorn leases) are part of the same class of ROU assets arising from market-related leases.

In December 2019, the AASB issued AASB 2019-8 Amendments to Australian Accounting Standards – Class of Right-of-Use Assets arising under Concessionary Leases to clarify that right-of-use (ROU) assets arising under concessionary leases (peppercorn leases) can be treated as a separate class of ROU assets to ROU assets arising under other leases for the purposes of AASB 16 Leases.

These amendments are effective for annual periods beginning on or after 1 January 2019.

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