PSAK 73

Under PSAK 73, a lease is defined as a contract, or part of a contract, that expresses the
underlying right to use an asset over a period of time as consideration. In fact, a lease differs
from a service contract in that it gives the customer the right to control the use of the asset,
whereas, in a service contract, the supplier has control over the contract. To differentiate
between the two contracts, PSAK 73 states that a contract contains a lease when there are
identifiable assets and the contract gives the customer the right to control the use of the
identified asset for a period of time as a reward. In this case, an asset can be identified either
explicitly or implicitly. If explicitly, the assets are specified in, whereas if implicitly, the
assets are not mentioned in the contract but the supplier can still fulfill the contract using
certain assets. As we have seen, entities often combine different types of supplier obligations,
which may be a combination of a lease component or a combination of lease and non-lease
components. If such a multi-element agreement exists, PSAK 73 requires each separate
component of the lease to be identified under the lease definition guidelines and recorded
separately.

A separate lease component can be made because it is the right that belongs to the customer
to use the asset but only if both of the following criteria are met i.e., the lessee can benefit
from the use of the asset alone or together with other resources available to the lessee and the
underlying asset is not highly dependent in, or strongly related to, another underlying asset in
the contract. Therefore, if there are separate lease and non-lease components, the entity
should consider the appropriate allocation between the following components:

• Lessee: Lessee allocates benefits based on relative prices that stand alone. The tenant must
estimate the price, and must maximize the use of observable information, if independent
observable prices are not available,

• Lessor: Lessor allocates benefits in accordance with PSAK 72, namely, based on the
relative selling price which stands alone.

The standard contains two exceptions in terms of recognition and measurement. Both
exceptions are optional and only apply to tenants. If any of these exceptions are applied,
leases are accounted for in a manner similar to accounting for current operating leases,
namely, short-term leases and leases where the underlying assets are low value. For short-
term leases, they usually have a term of 12 months or less. This term usually includes the
option to extend the lease period or to terminate the lease. Meanwhile, a lease whose basic
asset value is low is known as a lease for IT equipment or office furniture. Under PSAK 73,
neither lessees nor lessors can apply these standards to lease portfolios with similar
characteristics if the entity reasonably expects that the resulting effect does not differ
materially from the application of the lease-by-lease standard.

Under PSAK 73, lessees are required to recognize asset use rights and lease obligations
almost entirely. lease contracts, so the lessee no longer has to differentiate between a lease
contract and an operating lease. This is based on the economic principle that a lease contract
is the acquisition of the right to use the underlying asset at a purchase price paid in
installments to settle the lease obligation. These lease obligations are initially recognized on
the inception day of the contract and measured at an amount equal to the present value of
lease payments over the lease term that has not been paid. Meanwhile, the right to use assets
consist of the initial measurement amount of the lease liability, plus any lease payments made
to the lessor on or before the start date less lease incentives. received, the initial estimated
restoration costs and any initial direct costs incurred by the lessee are initially recognized on
the commencement day and measured at cost.

PSAK 73 distinguishes between three types of contingent payments, depending on the

underlying variables and the likelihood that the payments will actually result in:

1. Variable lease payments based on index or rate are part of the lease obligation. From the
tenant's point of view, these payments are unavoidable. This is because any uncertainty held
by the lessee is only related to the measurement of the liability but not its existence. Variable
lease payments based on an index or rate are initially measured using an index or rate at the
commencement date which means that the entity cannot predict future changes in index or
rates because these changes are accounted for at the point in time at which the lease payments
change.

2. Variable lease payments based on other variables are not part of the lease obligation. This
payment is related to the lessee's performance derived from the underlying asset such as a
payment if the lessee exceeds the specified mileage. These payments are recognized in the
income statement in the period in which the event or condition that triggered the payment
occurred.

3. Fixed payments in substance are lease payments which, in their form, contain variability
but, in substance, are still included in the lease obligation.
Not only deals with lessees, PSAK 73 also regulates lessors. According to this standard, the
lessor must classify the lease as financial or operating. This condition depends on whether
substantially all the risks and rewards incidental to ownership of the underlying asset have
been transferred. Meanwhile, for a finance lease, the lessor recognizes a receivable with an
amount equal to the net investment in the lease which is the present value of the aggregate
lease payments received by the lessor and the unsecured residual value. If the contract is
classified as an operating lease, the lessor continues to present the underlying asset. Under
PSAK 30, the underlying assets are included in the sublease. Therefore, PSAK 73 requires
lessors to evaluate the sublease with reference to the right to use assets. This needs to be done
by the lessor to find out whether the fair value of the use rights asset is below the fair value of
the underlying asset or not. If the initial lease is a short-term lease, the lease back is classified
as an operating lease. Meanwhile, for a lease back that results in a finance lease, the
intermediary lessor is not allowed to offset the remaining lease obligations and the lease
receivables. The same applies to rental income and rental expenses related to the initial lease
and lease back of the same underlying asset.