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Incremental Borrowing Rate Assessment - HKFRS 16 Lease
Incremental Borrowing Rate Assessment - HKFRS 16 Lease
Description
  • Companies should not underestimate the time it will take to determine appropriate incremental borrowing rates. lessee-specific features or factors should be reasonably considered in the assessment of the rates.
  • The incremental borrowing rate is defined under HKFRS 9 as the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
  • Based on its own facts and circumstances, a company should usually consider applying the following adjustments to its general borrowing rate as needed:
  • Align the duration of the loan to the length of the lease;
  • Reflect the loan with a collateral similar to the nature and quality of the leased asset;
  • Reflect the loan amount similar to the value to the right-of-use asset; and
  • Align the currency of the loan with the currency of the lease payments.
  • Alternatively, property yields (or rental yields) of the leased assets can be used as a starting point to derive incremental borrowing rates.
  • In both cases, a systematic process to derive applicable company specific adjustment factors should be in place to determine incremental borrowing rates. 
  • Many listed companies may be lack of necessary third-party data and a systematic process to determine incremental borrowing rates.
  • Valtech Valuation has been helping our clients for smooth application and compliance of treatment according to  the requirements of HKFRS 16.
Valtech Valuation Advisory Limited

Valtech Valuation Advisory Limited

Hong Kong

Service Company

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SUPPLIER INFO LAST UPDATED: 20 Sep 2020

ADVERTISE SINCE: 18 Jun 2020

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