BLM52035 | Right-of-use assets: right-of-use asset lessees: the spreading rules: impairment

A lessee may, in previous accounting periods, have recognised an onerous lease provision in respect of a right-of-use asset. IFRS 16 (paragraph C10 (b)) allows a practical expedient on adoption of IFRS 16 if the modified retrospective approach is followed to reclassify the onerous lease provision as an adjustment to the right-of-use asset recognised rather than perform a full impairment review in accordance with IAS 36 Impairment of Assets. A similar practical expedient applies for FRS 102 (2024 amendments) (paragraph 1.53 (b). See BLM17050 for more details on transition rules.

On adoption of a new or revised accounting standard, depending on the transition approach adopted and practical expedients used, the transitional accounting adjustment relating to such a lease may include the reversal of any provisions in respect of it, meaning that the effect of the reversal will be spread, rather than being taken fully into account for tax purposes in the period in which the new or revised standard is adopted. If this approach is followed any impairment allowances made on transition by application of IAS 36 Impairment of Assets or FRS 102 Section 21 Provisions and Contingencies to right-of-use assets recognised at the date of initial application will also be included in the spreading calculation.