In accordance with the "Basic Standards for Enterprise Accounting," the Ministry of Finance issued the revised CAS No. 21 — Leases on 2018/12/7, effective as of 2019/1/1.
1. Overview of Guidelines
Leasing is a contract whereby, for a specified period, the lessor grants the lessee the right to use an asset in exchange for consideration. The core change in this standard is that lessees no longer distinguish between finance leases and operating leases; instead, they apply a unified "right-of-use" model for accounting treatment.
Lease Identification
On the commencement date of a contract, an entity shall assess whether the contract is or contains a lease. A contract is, or contains, a lease if it conveys the right to control the use of one or more identified assets for a period of time in exchange for consideration.
II. Lessee's Accounting Treatment
Right-of-use asset
A lessee shall measure a right-of-use asset at cost, which includes: the amount of the initial measurement of the lease liability; lease payments made at or before the commencement date; initial direct costs incurred by the lessee; and estimates of costs to be incurred by the lessee for dismantling and removing the underlying asset, restoring the site on which it is located, or restoring the underlying asset to the condition required by the terms and conditions of the lease.
Lease liability
The lessee shall initially measure the lease liability at the present value of the lease payments not yet paid as of the commencement date. Lease payments include fixed payments and in-substance fixed payments, variable lease payments that depend on an index or a rate, the exercise price of a purchase option, and other amounts.
Exemption Rules
- • Short-term leases (lease term not exceeding 12 months) may be exempt from recognizing right-of-use assets and lease liabilities.
- • Short-term leases of low-value assets may not recognize right-of-use assets or lease liabilities.
III. Lessor's Accounting Treatment
At the commencement of the lease, the lessor shall classify it as either a finance lease or an operating lease.
Financial Leasing
A lease that transfers substantially all the risks and rewards incidental to ownership of a leased asset. The lessor shall derecognize the finance lease asset and recognize a finance lease receivable at the commencement date of the lease.
Operating Lease
Leases other than finance leases. The lessor shall continue to recognize the operating lease asset and recognize lease income over the lease term using a systematic and rational method.
Regulatory Document Attachment
Accounting Standards for Business Enterprises No. 21 — Leases (PDF)