IFRS 16 Explained with Examples & Journal Entries

IFRS lease accounting guide

IFRS 16 Explained Simply with Examples, Journal Entries & EBITDA Impact

IFRS 16 requires most leases to be recognised on the balance sheet through a right-of-use asset and a lease liability. It changed lease accounting globally because operating leases that were previously off balance sheet under IAS 17 now affect assets, liabilities, EBITDA, leverage ratios and valuation multiples.

In simple terms, IFRS 16 says: if a company controls the right to use an identified asset for a period of time and pays for that right, the lease usually belongs on the balance sheet. The rent payment does not disappear economically, but the accounting changes from a single rent expense to depreciation on the right-of-use asset and interest on the lease liability.

That is why IFRS 16 is not just an exam topic. It changed how lease-heavy businesses look on paper, especially when a company leases stores, aircraft, warehouses, vehicles or data-centre space instead of buying those assets outright.

Direct answer: IFRS 16 is a lease accounting standard that makes lessees recognise a right-of-use asset and a lease liability for most leases, except short-term leases and low-value asset leases. This usually increases reported assets, liabilities and EBITDA, even when cash flows do not change.

Who Needs to Understand IFRS 16?

IFRS 16 matters to different readers for different reasons. A DipIFR student needs the calculation and journal entries. A CFO needs to understand debt ratios and covenant effects. An analyst needs to know whether EBITDA is comparable. An auditor needs evidence that the lease population is complete.

Reader type	Why IFRS 16 matters	Most important question to ask
DipIFR or IFRS student	Lease questions test calculation, journal entries and interpretation together.	Can I explain both the entry and the business reason behind it?
Finance manager or CFO	Lease liabilities affect leverage, covenants, budgets and reporting packs.	Have we captured the full lease population and key assumptions?
Equity analyst or investor	EBITDA, debt and enterprise value multiples can change without cash flow changing.	Am I comparing companies on the same lease-adjusted basis?
Auditor	Completeness, discount rates, lease term and embedded leases require evidence.	What could management have missed outside the lease register?
Shared service or GCC finance team	Lease accounting depends on clean contract data from multiple departments.	Are contract changes reaching finance before month-end or year-end close?

Human way to remember it: IFRS 16 is where accounting meets contracts. The calculation is only as good as the lease term, payment schedule, discount rate and contract review behind it.

What Is IFRS 16?

IFRS 16 is the International Financial Reporting Standard for lease accounting. The IFRS Foundation says the objective of IFRS 16 is to report information that faithfully represents lease transactions and gives users a basis to assess the amount, timing and uncertainty of cash flows arising from leases IFRS Foundation.

The standard was issued in January 2016 and is effective for annual reporting periods beginning on or after 1 January 2019, with earlier application permitted if IFRS 15 was also applied IFRS Foundation. IFRS 16 replaced IAS 17, IFRIC 4, SIC-15 and SIC-27 IFRS Foundation.

Why IFRS 16 Was Introduced

IFRS 16 was introduced because operating leases under IAS 17 often kept major financing-like obligations off the balance sheet. The IFRS effects analysis says listed companies using IFRS or US GAAP disclosed almost US$3 trillion of off-balance-sheet lease commitments before the new standard IFRS Foundation Effects Analysis.

The core accounting concern was comparability. A company that borrowed to buy stores, aircraft or trucks looked more leveraged than a company that leased similar assets under operating leases, even if the economics were similar.

The Problem With IAS 17

Under IAS 17, lessees classified leases as either finance leases or operating leases. Finance leases were recognised on the balance sheet, while operating leases were usually expensed as rent over time. That created a sharp accounting difference between two contracts that could be economically similar.

The IFRS effects analysis says the absence of lease information on the balance sheet meant investors and analysts could not properly compare companies that borrowed to buy assets with companies that leased assets without making adjustments IFRS Foundation Effects Analysis.

The Core Idea Behind IFRS 16

The core idea is simple: a lease gives the lessee a right to use an asset and creates an obligation to make lease payments. IFRS 16 reflects that economics by recognising both sides on the balance sheet.

Memory rule: IFRS 16 turns most leases into “asset plus liability” accounting for lessees. The asset is the right to use the leased item. The liability is the obligation to pay for that right.

How IFRS 16 Changed Lease Accounting

Operating Lease vs Finance Lease Under IAS 17

Under IAS 17, a finance lease was treated like an asset purchase financed by debt. The lessee recognised an asset and liability. An operating lease, however, was treated like a rental arrangement. The lessee usually recognised rent expense in profit or loss, while the leased asset and future obligation were not shown as recognised assets and liabilities.

How IFRS 16 Treats Most Leases

IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value IFRS Foundation. The standard keeps recognition exemptions for short-term leases and low-value assets, so a one-year laptop lease or small office equipment lease may remain expensed if the entity elects the exemption.

What Is a Right-of-Use Asset?

A right-of-use asset is the lessee’s recognised asset representing its right to use the underlying leased asset during the lease term. The company does not necessarily own the aircraft, store, vehicle or warehouse. It controls the right to use it for the period covered by the lease.

IFRS 16 initially measures the right-of-use asset at cost. That cost starts with the initial lease liability and is adjusted for items such as lease payments made at or before commencement, lease incentives received, initial direct costs and restoration obligations where applicable.

What Is a Lease Liability?

A lease liability is the present value of future lease payments that have not yet been paid. IFRS 16 says the lease payments are discounted using the rate implicit in the lease if it can be readily determined; otherwise, the lessee uses its incremental borrowing rate.

This discounting matters because a payment due five years from now is not worth the same as a payment due today. IFRS 16 therefore measures the liability at present value, then unwinds interest over the lease term.

IFRS 16 Explained Through a Simple Example

Example Scenario

Assume Edu Retail Ltd leases a store for five years. Lease payments are 100,000 per year, payable at the end of each year. The discount rate is 8%. There are no initial direct costs, no lease incentives, no restoration obligation and no purchase option.

Input	Amount / assumption
Lease term	5 years
Annual lease payment	100,000, paid at each year-end
Discount rate	8%
Initial direct costs / incentives	Nil

Initial Lease Recognition

At commencement, the lessee recognises a lease liability equal to the present value of the five future payments. The right-of-use asset is initially measured at the same amount in this simplified example because there are no initial direct costs, prepaid lease payments, incentives or restoration obligations.

Calculating the Lease Liability

The present value of five annual payments of 100,000 discounted at 8% is 399,271. That is the initial lease liability.

Calculating the Right-of-Use Asset

In this simplified example, the right-of-use asset is also 399,271. If there were initial direct costs, prepaid rent, incentives or restoration costs, the right-of-use asset would be adjusted for those items.

Lease Amortisation Schedule

Year	Opening liability	Interest at 8%	Cash payment	Principal reduction	Closing liability
1	399,271	31,942	100,000	68,058	331,213
2	331,213	26,497	100,000	73,503	257,710
3	257,710	20,617	100,000	79,383	178,326
4	178,326	14,266	100,000	85,734	92,593
5	92,593	7,407	100,000	92,593	Nil

Step-by-Step Journal Entries

If the right-of-use asset is depreciated straight-line over five years, annual depreciation is 79,854. The accounting is not the same as simply debiting rent expense for 100,000 each year.

IFRS 16 Journal Entries Explained

IFRS 16 journal entries are easier to understand if you separate the lease into two accounting streams: the asset stream and the liability stream. The asset stream creates depreciation. The liability stream creates interest and principal repayment.

Initial Recognition Entry

Dr Right-of-use asset                     399,271
    Cr Lease liability                                399,271

To recognise the right to use the store and the obligation to make future lease payments.

Interest Expense Entry

At the end of year 1, interest is calculated on the opening lease liability of 399,271 at 8%, which equals 31,942.

Dr Finance cost / interest expense         31,942
    Cr Lease liability                                 31,942

To unwind the discount on the lease liability for year 1.

Lease Payment Entry

When the year-end cash payment is made, the lease liability is reduced. The payment is not recorded entirely as rent expense under IFRS 16.

Dr Lease liability                         100,000
    Cr Cash                                             100,000

To record the annual lease payment.

Depreciation Entry

The right-of-use asset is depreciated over the lease term because the company consumes the economic benefit of using the store over five years.

Dr Depreciation expense                     79,854
    Cr Accumulated depreciation - ROU asset             79,854

To depreciate the right-of-use asset over the lease term.

End-of-Year Accounting Impact

Year 1 item	Amount	Financial statement effect
Depreciation expense	79,854	Reduces operating profit but is excluded from EBITDA.
Interest expense	31,942	Finance cost below operating profit and excluded from EBITDA.
Total P&L charge in year 1	111,796	Higher than the 100,000 cash rent because interest is front-loaded.
Cash paid	100,000	Total cash flow unchanged by IFRS 16.

How IFRS 16 Impacts EBITDA

Why EBITDA Increased After IFRS 16

EBITDA usually increases under IFRS 16 because the former operating lease rent expense is replaced by depreciation and interest. EBITDA excludes interest, tax, depreciation and amortisation, so both of the new IFRS 16 expense components are outside EBITDA.

The IFRS effects analysis says IFRS 16 is expected to result in higher EBITDA for companies with material off-balance-sheet leases because EBITDA under IFRS 16 does not include lease expenses that were included under IAS 17 operating lease accounting IFRS Foundation Effects Analysis.

Rent Expense vs Depreciation and Interest

Metric	Under IAS 17 operating lease	Under IFRS 16
Rent / lease payment	Shown as operating lease expense.	Split between lease liability repayment and finance cost.
Depreciation	No right-of-use asset depreciation for operating leases.	Depreciation recognised on the right-of-use asset.
Interest	No lease liability interest for operating leases.	Interest recognised on the lease liability.
EBITDA	Reduced by rent expense.	Usually increases because depreciation and interest are excluded.

Which Industries Saw the Biggest EBITDA Changes?

Lease-heavy industries were affected the most. The IFRS effects analysis identified airlines, retailers, travel and leisure, transport and telecommunications as sectors with significant off-balance-sheet lease exposure IFRS Foundation Effects Analysis.

Industry	Why IFRS 16 mattered	Typical business example
Airlines	Aircraft leases and airport property leases moved onto the balance sheet.	An airline leasing aircraft may report higher lease liabilities and higher EBITDA.
Retail chains	Store leases were often large, long-term and previously operating leases.	A supermarket chain with hundreds of stores may show a large right-of-use asset base.
Logistics companies	Warehouses, trucks and distribution centres are frequently leased.	A courier company leasing depots and vehicles may report higher debt-like obligations.
Telecom and infrastructure	Tower sites, network locations and equipment leases can be material.	A telecom operator may need systems to track thousands of site leases.

Why Analysts Adjust EBITDA After IFRS 16

Analysts adjust EBITDA because IFRS 16 can mechanically improve EBITDA without improving operations. A retailer did not sell more products simply because lease accounting changed. An airline did not generate more cash simply because aircraft lease rentals moved below EBITDA.

This is where IFRS 16 created real-world tension. Some management teams liked the higher EBITDA headline, while many investors and lenders still wanted to see a lease-adjusted or pre-IFRS 16 view to preserve comparability. In lease-heavy sectors, IFRS 16 improved transparency but also made EBITDA less intuitive unless the reader understood what moved below the EBITDA line.

AASB’s copy of the IFRS effects analysis states that IFRS 16 does not affect the total amount of cash flows reported, but it is expected to reduce operating cash outflows and increase financing cash outflows because principal repayments on lease liabilities are classified as financing activities AASB.

Contrarian insight: IFRS 16 improved balance sheet transparency, but it also made EBITDA easier to misunderstand. A higher EBITDA figure after IFRS 16 is not automatically a higher-quality business.

IFRS 16 Impact on Financial Statements

Balance Sheet Impact

The balance sheet impact is the most visible change. IFRS 16 increases assets by recognising right-of-use assets and increases liabilities by recognising lease liabilities. For companies with major operating leases under IAS 17, reported debt-like obligations became more transparent.

Profit and Loss Impact

The profit and loss impact changes the pattern and classification of expense. Instead of a single straight-line rent expense, IFRS 16 records depreciation and interest. Interest is higher in earlier years because the lease liability is larger at the start of the lease.

Cash Flow Statement Impact

Total cash does not change because accounting standards do not alter the actual lease payment. Presentation changes. The principal portion of lease payments moves to financing cash flows, while interest is classified based on the entity’s accounting policy under IFRS.

Impact on Financial Ratios

Ratio / measure	Typical IFRS 16 effect	Why
EBITDA	Increases	Rent expense is replaced by depreciation and interest.
Debt / liabilities	Increases	Lease liabilities are recognised on balance sheet.
Asset turnover	Often decreases	Total assets increase due to right-of-use assets.
Interest cover	May decrease	Finance cost increases due to lease liability interest.
Operating cash flow	Often increases	Principal lease payments move to financing activities.

Which Industries Were Most Affected by IFRS 16?

The easiest way to understand IFRS 16 is to imagine the industries where the core assets are often leased rather than owned. The accounting effect becomes visible when stores, aircraft, warehouses, towers or vehicles are essential to the business model but were previously treated as operating lease commitments.

Airlines

Airlines were heavily affected because aircraft leases can be large, long-term and central to operations. Under IAS 17, two airlines with different lease-versus-buy strategies could look very different from their economic reality. IFRS 16 made aircraft lease obligations more visible.

Mini case study: airline leases. Before IFRS 16, an airline that leased aircraft could appear less leveraged than an airline that borrowed money to buy aircraft. After IFRS 16, both business models became easier to compare because aircraft lease obligations became visible as lease liabilities. The economics had not suddenly changed, but the balance sheet became more honest.

Retail Chains

Retail chains were heavily affected because store leases often represent a major operating commitment. A retailer with thousands of stores may recognise substantial right-of-use assets and lease liabilities even though it does not own the retail properties.

Mini case study: retail store leases. A retail chain may lease every store in a shopping centre network. Under IAS 17, the rent appeared mainly as an operating expense. Under IFRS 16, the same store network produces right-of-use assets, lease liabilities, depreciation and interest. The CFO now has to explain why EBITDA rose while debt-like liabilities also rose.

Logistics Companies

Logistics companies often lease warehouses, fleets, depots and specialised equipment. IFRS 16 can therefore affect leverage, asset intensity and EBITDA for courier, freight and warehousing businesses.

Mini case study: logistics contracts. A logistics provider may sign a long-term contract for a dedicated warehouse or vehicle fleet. The practical challenge is not only calculating present value. The harder question is whether the arrangement contains an identified asset and whether the customer controls the right to use it.

Telecom and Infrastructure

Telecom companies may lease tower sites, network locations, land and equipment. IFRS 16 forces finance teams to track lease terms, renewal options, discount rates and modifications across large contract populations.

IFRS 16 vs IAS 17: Key Differences

Lease Classification Differences

IAS 17 used a classification model for lessees: finance lease or operating lease. IFRS 16 removed that distinction for most lessee accounting and introduced a single model.

Area	IAS 17	IFRS 16
Lessee lease classification	Finance lease or operating lease.	Single lessee model for most leases.
Operating leases	Usually off balance sheet for lessees.	Usually recognised as right-of-use asset and lease liability.
Expense pattern	Straight-line rent expense for operating leases.	Depreciation plus interest expense.
EBITDA	Reduced by operating lease rent.	Usually higher because lease expense moves below EBITDA.
Lessor accounting	Operating lease or finance lease model.	Largely carried forward from IAS 17.

Balance Sheet Recognition Differences

The biggest balance sheet difference is recognition. IFRS 16 brings most lessee leases onto the balance sheet. IAS 17 allowed many operating leases to be disclosed in notes rather than recognised as assets and liabilities.

Profit Impact Differences

IFRS 16 can front-load total expense for an individual lease because interest is higher in early years. However, for a large portfolio of leases starting and ending at different times, the overall profit impact may be smoother.

Common IFRS 16 Mistakes Students and Companies Make

Incorrect Lease Identification

A contract contains a lease only if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Students often focus on the word “lease” instead of the control test.

Ignoring Embedded Leases

Some service contracts contain embedded leases. For example, a logistics or data-centre contract may include the right to use identified assets even if the contract title does not say “lease.”

Incorrect Discount Rate Selection

The lease liability must be discounted using the interest rate implicit in the lease if readily determinable; otherwise, the lessee uses the incremental borrowing rate. A small rate error can materially change the liability.

Confusing Depreciation With Lease Payments

Depreciation is the allocation of the right-of-use asset. Lease payments reduce the liability and cash. They are connected, but they are not the same accounting entry.

Why AI Tools Still Make Mistakes With IFRS 16

AI tools can explain IFRS 16 quickly, but they can also produce confident answers from incomplete assumptions. Lease accounting depends heavily on contract facts, so a tool that does not know the renewal clauses, discount rate, incentives, restoration obligations or embedded lease terms can produce a neat answer that is still wrong.

AI risk area	Common wrong answer	Human review needed
Lease term	Uses the non-cancellable period only.	Check whether extension or termination options are reasonably certain.
Discount rate	Applies a generic market rate.	Use the implicit rate if readily determinable, otherwise assess the incremental borrowing rate.
Embedded leases	Treats every service contract as non-lease.	Review whether an identified asset is controlled by the customer.
Restoration obligations	Ignores site restoration or dismantling costs.	Check whether the right-of-use asset cost should include restoration-related obligations.
EBITDA interpretation	States that higher EBITDA means better performance.	Separate accounting presentation from operating economics.

Best use of AI for IFRS 16: use AI to explain concepts, draft checklists and test your understanding. Do not use it as the final authority for lease classification, discount rates, journal entries or financial statement disclosures without human verification.

Why IFRS 16 Still Confuses Finance Professionals

Conceptual vs Mechanical Understanding

Many learners can memorise the journal entries but still fail to understand the economic story. IFRS 16 is not only a debit-credit standard. It changes how a lease is viewed: not merely as rent, but as a financing decision that gives control of an asset for a period of time.

Why Lease Accounting Changes Financial Thinking

IFRS 16 forces finance teams to think about lease term, renewal options, discount rates, embedded leases, non-lease components, restoration obligations and modifications. The accounting depends on contract economics, not only invoice amounts.

Why Analysts Often Adjust Reported Numbers

Analysts adjust reported numbers because IFRS 16 changes presentation without changing business cash flows. EBITDA may rise, debt may rise and operating cash flow may rise, but the company’s stores, aircraft and warehouses did not become more profitable merely because of the standard.

How IFRS 16 Affects Business Valuation

Enterprise Value Impact

IFRS 16 affects enterprise value analysis because lease liabilities are often treated like debt. If an analyst includes lease liabilities in net debt, they need to ensure valuation multiples are applied consistently.

Debt Ratio Changes

Debt ratios typically increase because lease liabilities are recognised. A retailer that previously had modest bank debt may suddenly show large lease liabilities because store obligations are now visible on balance sheet.

EBITDA Multiple Distortion

IFRS 16 can distort EBITDA multiples if one company reports IFRS 16 EBITDA and another is analysed on a pre-IFRS 16 or rent-adjusted basis. Higher EBITDA does not automatically mean better operating performance.

Investor Interpretation Challenges

Investors need to separate accounting presentation from lease economics. IFRS 16 improves transparency, but it does not remove the need for judgement. Analysts still examine lease term, renewal assumptions, discount rates, cash lease payments and industry norms.

Why IFRS 16 Matters for India, GCC and MNC Finance Teams

IFRS 16 is especially relevant for India-based finance teams, GCC shared service centres and MNC reporting teams because lease accounting is rarely handled by one person. Legal teams hold contracts, procurement teams manage vendors, operations teams know which assets are being used, and finance teams must convert that information into right-of-use assets, lease liabilities, depreciation, interest and disclosures.

In practice, IFRS 16 work often fails because the lease data is incomplete rather than because the accounting rule is unknown. A finance team may understand present value perfectly but still get the answer wrong if it misses a warehouse renewal option, an embedded lease in a logistics contract, or a service component hidden inside a facilities agreement.

Finance team issue	Why it matters under IFRS 16	Practical control to build
Contracts held outside finance	Leases may be missed if only invoices are reviewed.	Create a quarterly contract scan with procurement and legal.
Renewal options not tracked	The lease term may be understated if extension options are reasonably certain.	Document management’s renewal assessment with evidence.
Discount rates copied from old files	Lease liabilities and finance costs can be misstated.	Refresh incremental borrowing rates by currency, term and entity risk.
Embedded leases ignored	Service contracts may contain a right to use identified assets.	Screen logistics, warehousing, IT hosting and dedicated equipment contracts.
Group reporting deadlines	Late lease changes create consolidation and audit issues.	Maintain a lease register with owner, term, payment and modification fields.

Practitioner insight: IFRS 16 is not only an accounting-standard topic. It is a contract-data, audit-evidence and reporting-process topic. That is why MNC finance roles often test whether candidates can explain the business logic, not just calculate the lease liability.

Common Misconceptions About IFRS 16

Misconception	Reality
IFRS 16 means every lease must be capitalised.	Short-term leases and leases of low-value assets can be exempt if the lessee elects the recognition exemption.
Higher EBITDA means the business became stronger.	EBITDA may rise because rent is replaced by depreciation and interest, not because cash economics improved.
The lease payment is the same as depreciation.	The payment reduces the lease liability; depreciation allocates the right-of-use asset over time.
Only property leases matter.	Vehicles, warehouses, aircraft, equipment, data centres and dedicated assets in service contracts may also matter.

IFRS 16 Explained for DipIFR Students

Why IFRS 16 Is Important in DipIFR

IFRS 16 is important in DipIFR because it combines conceptual accounting, calculations, financial statement presentation and interpretation. It can appear as a numerical adjustment, a written explanation or part of a larger financial statements question.

Most Tested IFRS 16 Areas

Identifying whether a contract contains a lease.
Calculating the initial lease liability using present value.
Measuring the right-of-use asset.
Recording depreciation and finance cost.
Applying short-term and low-value lease exemptions.
Explaining EBITDA, debt and cash flow impacts.

How to Study IFRS 16 Effectively

Start with the concept before the formula. Ask: what asset is being controlled, what payments are unavoidable, what discount rate applies, and how does the accounting affect EBITDA and leverage? Then practise calculations and journal entries.

Eduyush students can cross-check past exam-style lease questions on the Eduyush IFRS 16 DipIFR question index. If you are preparing for the qualification, see the Eduyush IFRS training and DipIFR course collection, the ACCA Diploma in IFRS registration page, and the DipIFR classes timetable.

For related IFRS reading, compare lease accounting with asset-measurement topics such as IAS 40 Investment Property, or use the Eduyush DipIFR study strategy guide to plan revision across standards.

Final Thoughts: Why IFRS 16 Matters Beyond the Exam

IFRS 16 matters because it changed how leases are seen in financial statements. It made lease obligations more visible, improved comparability and forced users to think about the financing effect of leases.

For students, IFRS 16 is a calculation topic. For finance professionals, it is a business interpretation topic. For analysts, it is a valuation and comparability topic. A good IFRS 16 answer therefore explains not just the journal entry, but why EBITDA, debt, operating cash flow and valuation multiples change.

Best summary: IFRS 16 does not change the store, aircraft or warehouse. It changes how the financial statements show the right to use that asset and the obligation to pay for it.

Connect the IFRS 16 entries with the business economics

IFRS 16 becomes easier once you stop seeing it as only a present value calculation. The real skill is connecting lease terms, journal entries, EBITDA, leverage and valuation into one story.

If you are preparing for DipIFR or building IFRS reporting confidence, Eduyush’s IFRS and ACCA Diploma in IFRS training can help you practise standards through examples. You can also review the IFRS 16 DipIFR question bank index before attempting exam-style lease questions.

FAQs on IFRS 16

What is IFRS 16 in simple words?

IFRS 16 is the lease accounting standard that requires most leases to be recognised on the lessee’s balance sheet as a right-of-use asset and a lease liability.

How does IFRS 16 affect EBITDA?

IFRS 16 usually increases EBITDA because operating lease rent expense is replaced by depreciation and interest. EBITDA excludes depreciation and interest, so the former rent no longer reduces EBITDA in the same way.

What is a right-of-use asset?

A right-of-use asset represents the lessee’s right to use an underlying leased asset during the lease term. It is not ownership of the asset; it is the recognised right to use the asset.

What is a lease liability?

A lease liability is the present value of future lease payments that the lessee is obligated to make. It is measured using the implicit rate in the lease if available, or the lessee’s incremental borrowing rate.

What is the main difference between IFRS 16 and IAS 17?

IAS 17 allowed many operating leases to remain off balance sheet for lessees. IFRS 16 requires most leases to be recognised on balance sheet using a right-of-use asset and lease liability model.

Does IFRS 16 change cash flow?

IFRS 16 does not change the total cash paid under the lease. It changes cash flow presentation because principal lease payments are shown in financing cash flows, while interest is classified according to the entity’s IFRS accounting policy.

Why is EBITDA controversial after IFRS 16?

EBITDA can become controversial after IFRS 16 because it usually increases when rent is replaced by depreciation and interest, even though the lease cash payments and business economics have not changed.

Can AI tools calculate IFRS 16 correctly?

AI tools can help explain IFRS 16 and create practice examples, but the final calculation still needs human review because lease term, discount rate, embedded leases, incentives and restoration obligations depend on contract-specific facts.