Impact on Company due to AASB 16 PDF

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Impact on companies due to AASB 16 ...

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The new AASB 16 (in accordance with IFRS 16) will not only bring substantial new assets and liabilities into the balance sheet of Qantas but in addition will have a significant impact on reported profit and performance measures such as return on capital employed. It will have increasing effect on debt/equity (leverage) ratio, Operating Profit (Earning before interest and tax), and Earning Before Interest, tax, depreciation and amortisation(EBITDA). On the contrary, it will decrease profitability ratio such as Assets turnover ratio.

The leased asset (other than short term leases and low value leases) and financial liabilities will increase in balance sheet (other than short term leases and low value leases) and equity part of the balance sheet will decrease. The lease liability and right use of assets are initially recognised on the present value of future lease payments discounted at the interest rate implicit in the lease wherever applicable, and group’s incremental borrowing rate where the discount rate is not available. Retrospective approach will result in difference between right of use asset and lease liability recognised on transition. Qantas will have to recognise depreciation and interest expense instead of operating lease expense in income statement. This will result in increase in finance cost and decrease in operating expenses. The repayment of principal of lease payments will have to be classified as financing activities and interest portion as operating activities in Cash Flow Statements. Under existing AASB 117 standards, all operating lease rentals are disclosed as operating activities. This will result in increase of financial cash flow and reduction of operating cash flow. The aircraft lease rental payment is predominantly US Dollars dominated for Qantas. The adoption of AASB 16 will result in foreign currency denominated lease liabilities recognised on balance sheet revaluation in response to foreign exchange rate fluctuations in AUD/USD exchange rates. Qantas will present the impact of AASB 16 firstly in the half year ending December 31, 2019, along with restatement of the comparatives for the first half year ending December 31, 2018 and on an opening balance sheet on July 1, 2018. Annual report for first full year impacted by AASB 16 will be year ending June 30, 2020....