A tolling agreement is a type of contract often used in the energy or chemical industries, where one party (the toller) agrees to process raw materials or input on behalf of another party (the tolling customer). This agreement helps reduce costs for the tolling customer and enables the toller to utilize excess capacity.
With the introduction of IFRS 16, a new lease accounting standard issued by the International Accounting Standards Board (IASB), tolling agreements are subject to new accounting requirements. IFRS 16 requires lessees to recognize leases on their balance sheet, including tolling agreements that meet the definition of a lease.
According to IFRS 16, a lease is defined as a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. If a tolling agreement meets these criteria, it should be recognized as a lease on the balance sheet of the tolling customer.
The recognition of a tolling agreement as a lease on the balance sheet of the tolling customer will have significant accounting implications. Firstly, the tolling customer will have to recognize a right-of-use asset, representing the right to use the underlying asset for the duration of the agreement. Secondly, the tolling customer will have to recognize a lease liability, representing the obligation to pay for the use of the underlying asset.
The implementation of IFRS 16 will require companies to review their tolling agreements to assess whether they meet the definition of a lease and need to be recognized on the balance sheet. This will require collaboration between finance and operations teams to ensure the completeness and accuracy of the lease information.
In conclusion, the implementation of IFRS 16 has significant implications for the accounting of tolling agreements, which may be recognized as leases on the balance sheet of the tolling customer. Companies will need to review their tolling agreements to assess whether they meet the definition of a lease and to ensure compliance with the new lease accounting standard.