This Hot Topics will provide guidance on impairment issues of lease prepayments.
If an entity has entered into an operating lease and has prepaid some of the rentals (a lease prepayment), how should the lease prepayment be assessed for impairment?
The operating lease prepayment asset should be considered for impairment in
accordance with MFRS 136 Impairment of Assets. Accordingly:
- the entity should assess at each reporting date whether there is any indication that the lease prepayment is impaired (MFRS 136.8)
- if there is an indication of impairment, the entity determines the recoverable amount of the asset and records an impairment loss