Wow, Ferg what can I say? I nominate your post for 'pointy head post of the year', Even I can't compete with a post like that! However, although it may go over the heads of many, I have read your post from start to finish to try and get the answer to my question(s). For those that have forgotten, I wanted to know how a simple two line entry under the old accounting standard....
....turned into a whole page of entries that had be be worked on under the new IFRS16 regime. The first question I have is in regard to the balance sheet implications below.
Now I don't know the ins and outs of every detail of converting from the old standard to the new standard. But am I correct in saying that the $0.751m 'balance sheet adjustment to retained earnings' (see quoted text above) is a 'one off' that won't have to be repeated 'in kind' in coming years? Has the $0.751m capital change effectively been added as a 'fudge factor' to make sure the 'Right of Use Assets' balance sheet entry (that did not exist before) is exactly balanced by the 'lease liabilities" (which did exist before, but which has not been represented on the balance sheet up to now)? I have been puzzled why the 'Right of Use Assets' did not -automatically- equal the 'Lease Liabilities' without any fudging. But if there will be no more fudging happening in the future, perhaps I have nothing to worry about?Quote:
HGH Lease Liabilities - New Method B) Lease Liability Position Debit Credit Source Notes 1/7/19 ROU Asset 10,728 p13, p38 Deferred Tax Asset 274 p13 says $0.3m Retained Earnings Adj. 751 p7, p13 Lease Liability 11,753 p12
Before the adoption of IFRS16 there were two kinds of lease contracts that were recognised separately, directly or indirectly, in the financial statements. 'Finance leases' were assets that Heartland would take over the ownership of at the end of the lease contract. 'Operating leases' were rental agreements where ownership of the assets were retained by the lessor. The 'finance lease' assets were always on the books of Heartland because they were contracted in such a way that it was clear that Heartland would end up owning these assets. OTOH the 'operating lease assets', while critical to the operations of Heartland's business, were never on the books at all. Of the very large lump of new assets recognised for FY2020,, $9.958m (p38 of Annual Accounts for FY2020 AND your reconciliation below Ferg) are very likely almost entirely previously classified 'operational assets'. Assets now being brought onto the books at Heartland for the first time.
If we now move to the reconciliation of the liabilities.....Quote:
Reconciliations: ROU Assets: Opening Balance 10,728 p13, p38 Add New Leases 9,958 p38 Less Depreciation -2,324 p38 Closing Balance 18,362 p8, p38
.....the actual cash payment that was made of $2.005m (remember that was the only number we had to worry about under the old standard) is in there (highlighted in bold). However, I am none the wiser on my previous post questionQuote:
Reconciliations: ROU Liabilities: Opening Balance 11,753 p12, p13 Add New Leases 10,138 derived Less Payments -2,005 p9 Add Interest 570 p38 Closing Balance 20,456 p8, p38
"Where does the 'Interest on right to use lease liabilities' on the bottom of page 38 of HGH Accounts for FY2020 of $570k come from?"
From your reconciliation of liabilities you are indicating this $570k of interest is accumulating and not being paid (?) Could this be interest that is accumulating as part of the finance lease portfolio? That doesn't sound right, as if true it would have accumulated under the old standard as well. But I will have to leave things there. It is late and my brain is starting to hurt!
SNOOPY