Accounting · Lease Accounting (IFRS 16)
Under IFRS 16, a company enters into a material 10-year lease for a new office building. Since it requires recognizing a Right-of-Use Asset and a Lease Liability, what is the expected initial impact on the company's Gearing Ratio (Debt-to-Equity)?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Gearing will not change, as it affects only off-balance sheet items
- 2Gearing will increase due to the recognition of a new Lease Liability (debt)✓
- 3Gearing will decrease as the liability is classified strictly as non-current
- 4Gearing will decrease because total assets increase
Correct answer
Gearing will increase due to the recognition of a new Lease Liability (debt)
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