IFRS 16 lease accounting schedule for a multi-country retail chain

Larkspur Home sells furniture, kitchenware and soft furnishings. It has grown from a handful of UK stores to 56, including 6 in Dubai and Abu Dhabi malls and 4 in German city centres. Annual rent is about £21 million. Until now, an external firm has run the IFRS 16 calculations in a tool Larkspur does not own, and the fees have doubled. The group finance director, Owen Price, wants the model in-house before the next year end.

The leases are messy. Some UK leases have five-yearly upward-only rent reviews. Several have break clauses the company may or may not use. UAE leases are shorter, often three years, and are usually paid quarterly in advance in AED. German leases are in euros and some are indexed to inflation.

You will build a synthetic lease register of 56 leases from the patterns in this brief, then: - decide the lease term for each, including judgements on breaks and extensions; - set an incremental borrowing rate by country and term; - calculate the opening lease liability and right-of-use asset, and the monthly schedule of interest, payments and depreciation; - handle a rent review and a lease extension as remeasurements; - produce year-end journals, the maturity analysis and a short note on the effect on EBITDA, operating profit and net debt.

Done looks like a model that the auditors can reperform for any lease, and a memo Owen can use to explain the numbers to the board. The auditors will sample 8 leases, so each one must be traceable from register to journal.