Valuation and Impairment in Relation to IFRS 16: En empirisk analyse, diskussion og praktisk efterprøvning heraf

Christian Lønne

Student thesis: Master thesis


The purpose of this thesis is to reperform and discuss the effects of the implementation of IFRS 16 which replaces IAS 17. The implementation of IFRS 16 is expected to have significant impact on the financial reports of companies whom are very highly dependent on lease agreements and are driven through an ‘asset light’ model. The thesis therefore outlines the effects of implementation of IFRS 16 and describes the effect on the key figures of a case company, Norwegian. It is shown that the implementation of IFRS 16 has a great effect on the balance sheet of a company with high volume of operational lease agreements. The assets and liabilities in overall aspect, doubles on the case company, with an amount of 35.438 m. NOK. As this has no effect on the equity, this means that the financial ratio, debt to equity ratio etc. is significally increased. Furthermore, this significant increase of the assets is subject for impairment in connection with IAS 36. The thesis therefore analyzes the effects of IFRS 16 in relation to valuation of the added right-touse assets, and overall equity value of a company. The underlying factors for estimating these values are put to the test and discussed, based on discount rate and cash flow in a value-in-use estimation method, DCF. Discussions are also made on, whether a higher leverage should give rise to financial distress, and therefore a lower cost of capital in continuance of higher debt-to-equity ratio should not be expected. This however is argumented not to be the case, as the underlying operating risk is unchanged. Suggestions are that the lower discount rate, in continuance of a higher debt-to-equity ratio, should provide sufficient value to maintain the additional right-to-use assets. However, this throughout the thesis, not considered to be proven. Furthermore, it is discussed and proven, that even though you would expect the underlying cash flow to be unchanged, you have to highly considered your estimations in regards of CAPEX, to maintain a steady equity value after IFRS 16. In overall the thesis concludes, that a is a series of practical challenges in relation to perform a true and fair valuation after IFRS 16.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2020
Number of pages82