ASBE No. 21
Active
Leases
Leases is part of the Chinese Accounting Standards for Business Enterprises (ASBE).
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Conceptual Framework Linkage
Bringing substantially all leases onto the lessee's Balance Sheet
ASBE No. 21 was REVISED to introduce a SINGLE on-BALANCE-SHEET LESSEE model – REQUIRING recognition of a "RIGHT-OF-USE ASSET" and a CORRESPONDING lease LIABILITY for SUBSTANTIALLY all leases – CLOSELY mirroring IFRS 16'S own approach internationally, and ELIMINATING the OLDER dual finance/OPERATING lessee CLASSIFICATION model.
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Scope and Effective Date
All lessees, with dual classification retained for lessors
This Standard applies to ALL companies that are LESSEES (WITH continued dual CLASSIFICATION for lessor ACCOUNTING – Section 7), effective from JANUARY 1, 2021 for ALL enterprises – a REVISION broadly PARALLELING IFRS 16'S own international ROLLOUT, WITH only a MODEST delay relative to IFRS 16'S 2019 effective date.
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The Single On-Balance-Sheet Lessee Model
No more off-balance-sheet operating leases
UNDER the REVISED Standard, a LESSEE recognises a RIGHT-OF-USE asset and a LEASE liability for VIRTUALLY all leases – ELIMINATING the OLD "operating LEASE" category'S off-balance-SHEET treatment entirely, SUBJECT to the NARROW exemptions in Section 6 – a SINGLE, unified LESSEE accounting MODEL replacing the PREVIOUS dual finance/OPERATING classification.
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Initial Measurement
Present value of lease payments, plus adjustments
The LEASE liability is INITIALLY measured at the PRESENT value of REMAINING lease PAYMENTS, discounted USING the rate IMPLICIT in the LEASE (or, WHERE not readily DETERMINABLE, the LESSEE'S incremental BORROWING rate). The RIGHT-OF-USE asset is INITIALLY measured at COST – GENERALLY the initial LEASE liability, PLUS any LEASE payments MADE at or BEFORE commencement, INITIAL direct COSTS, and ESTIMATED restoration COSTS.
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Subsequent Measurement
Depreciation of the asset, interest accretion on the liability
The RIGHT-OF-USE asset is DEPRECIATED (GENERALLY straight-LINE) over the SHORTER of the LEASE term or the ASSET'S useful LIFE. The LEASE liability is REDUCED as PAYMENTS are MADE, with INTEREST expense ACCRETING the liability OVER time.
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Exemptions – Short-Term and Low-Value Leases
Narrow relief, mirroring IFRS 16's own exceptions
A LESSEE MAY elect NOT to APPLY the on-BALANCE-SHEET model to SHORT-TERM leases (GENERALLY 12 MONTHS or LESS, with NO purchase OPTION) or LEASES of LOW-VALUE underlying ASSETS – recognising LEASE payments as an EXPENSE on a STRAIGHT-LINE basis INSTEAD, CONSISTENT with IFRS 16's OWN narrow exemptions.
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Lessor Accounting – Dual Classification Retained
Finance vs operating classification continues for lessors
UNLIKE the LESSEE-side reform, LESSOR accounting CONTINUES to DISTINGUISH between FINANCE leases (SUBSTANTIALLY transferring the RISKS and REWARDS of OWNERSHIP, derecognising the UNDERLYING asset and recognising a LEASE receivable) and OPERATING leases (RETAINING the underlying ASSET on the LESSOR'S own Balance SHEET, recognising LEASE income on a STRAIGHT-LINE basis) – CONSISTENT with IFRS 16'S own RETENTION of dual LESSOR classification internationally.
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Worked Example – Initial Recognition of a Lease
Recognising the right-of-use asset and lease liability
Example: A 5-year warehouse lease
A company enters a 5-year warehouse lease with annual payments of RMB 15,000,000, discounted using an incremental borrowing rate of 4%, giving a present value of lease payments of approximately RMB 66,800,000.
The company recognises a RIGHT-OF-USE ASSET and a LEASE LIABILITY of approximately RMB 66,800,000 EACH at commencement – REPLACING what WOULD previously have been a SIMPLE straight-LINE rental EXPENSE under the OLD operating lease TREATMENT.
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Worked Example – the Short-Term Lease Exemption
Retaining off-balance-sheet treatment for a genuinely short lease
Example: A 9-month equipment rental
A company rents equipment for a 9-month project, with no purchase option or expectation of renewal, at RMB 1,500,000 per month.
The company ELECTS the SHORT-TERM lease EXEMPTION, recognising RMB 1,500,000 of RENTAL expense EACH month on a STRAIGHT-line basis – WITHOUT recognising a RIGHT-of-use ASSET or LEASE liability.
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Disclosure Requirements
What ASBE No. 21 requires
Right-of-use assets and lease liabilities, by class of underlying assetMaturity analysis of lease liabilitiesInformation about short-term/low-value lease exemptions elected
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Determining the lease term, including renewal/termination options reasonably certain to be exercisedClassifying a lessor arrangement as finance or operating
SIGNIFICANT ESTIMATES
Incremental borrowing rate where the rate implicit in the lease is not readily determinable
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Relationship to IFRS 16
Comparison – ASBE 21 vs IFRS 16
FeatureASBE 21IFRS 16
Lessee modelSingle on-balance-sheet modelSingle on-balance-sheet model – converged
Lessor classificationDual finance/operating retainedDual finance/operating retained – converged
A GENUINELY thoroughly CONVERGED reform – CHINA'S adoption of the ON-balance-sheet lessee MODEL came only MODESTLY later than IFRS 16'S own INTERNATIONAL effective DATE, a CONTRAST to Japan GAAP'S considerably LONGER lag on the SAME topic.
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Statement Mapping
Where every lease event lands
EventStatement(s) affectedNotes
Lease commencementBSRight-of-use asset and lease liability recognised
Depreciation and interestBS ISDepreciation on the asset, interest accretion on the liability
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Related Standards
Cross-reference map
StandardConnection
ASBE No. 17Borrowing Costs – relevant for the interest expense treatment on lease liabilities
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Quick-Reference Glossary
Right-of-use asset
The asset recognised by a lessee representing its right to use a leased asset over the lease term.
Incremental borrowing rate
The rate a lessee would have to pay to borrow funds to obtain an asset of similar value, used when the rate implicit in the lease is not readily determinable.
Financial statement key (Chinese GAAP / ASBE terminology)
BS Balance Sheet (资产负债表)
IS Income Statement (利润表)
SCOE Statement of Changes in Owners' Equity (所有者权益变动表)
CFS Cash Flow Statement (现金流量表)
History & Development
2006-02
ASBE No. 21 Leases issued
Operative for periods beginning on or after 1 February 2007