IFRS 16, indication of effects of future adoption with quantification

Wärtsilä Corporation – Annual report – 31 December 2018

Industry: manufacturing
Accounting principles for the consolidated financial statements (extract)
Adoption of new and updated IFRS standards (extract)
In 2019, the Group will adopt the following new and amended standards and interpretations issued by the IASB.

New IFRS 16 Leases (effective for financial periods beginning on or after 1 January 2019): IFRS 16 addresses the definition, recognition and measurement of lease agreements and notes related to leases. The standard replaces IAS 17 Leases.

IFRS 16 changes the accounting for operating leases by requiring companies to recognise lease assets and lease liabilities in the balance sheet, initially measured at the present value of unavoidable future lease payments, and to depreciate those assets and interest on lease liabilities in the statement of income over the lease term. Whether a contract contains a lease is determined on the basis of whether the customer has the right to control the use of an identified asset for a period of time.

When adapting IFRS 16, the portion of the lease payments currently included in other operating expenses in the consolidated statement of income will be transferred to depreciations and amortisations and the interest portion to financial expenses. The standard will affect primarily the accounting for the Group´s operating leases increasing the balance sheet totals and some changes in key figures. At the reporting date, the Group has operating lease commitments of EUR 266 million, see note 29. Collateral, contingent liabilities and other commitments. Based on the Group´s estimation the net present value of the capitalised lease liability amounts to EUR 212 million according to the following bridge calculation:

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The Group will apply the two available exceptions, which relate to either short-term contracts in which the lease term is less than 12 months or less, or low value assets, which are expensed to other operating expenses. The Group will apply the modified approach in transition.

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