IFRS 16 · Healthcare

IFRS 16 Lease Calculator
for Healthcare

Pre-configured for healthcare entities with medical equipment, clinical premises, and specialised facility leases. Addresses grant income interactions, public funding considerations, and regulatory compliance for healthcare providers.

Lease Terms

If checked, ROU asset depreciates over useful life instead of lease term (IFRS 16.32)

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IFRS 16.26 — At the commencement date, a lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date.

IFRS 16.23–24 — At the commencement date, a lessee shall measure the right-of-use asset at cost.

ISA 500 — Sufficient appropriate audit evidence for the lease liability as independent audit evidence.

ISA 540 — Auditing accounting estimates — applies to the IBR determination and lease term judgment.

IFRS 16 for Healthcare — Practical Guidance

Healthcare entities — from private hospital groups and medical equipment providers to publicly funded health systems and care homes — hold diverse lease portfolios spanning clinical premises, diagnostic equipment (MRI, CT scanners), ambulances, IT infrastructure, and specialist medical devices. IFRS 16 recognition of these leases creates particular challenges in healthcare due to the interaction with government grants, public funding mechanisms, and sector-specific regulatory requirements. For NHS trusts and publicly funded providers, the Department of Health and Social Care (DHSC) has issued specific guidance on IFRS 16 application.

Measurement Considerations for Healthcare

Medical equipment leases frequently include embedded service components — maintenance contracts, calibration, consumables supply, and training. IFRS 16.12 requires separation of lease and non-lease components, though the practical expedient in IFRS 16.15 (not to separate) is available on a class-of-asset basis. For high-value diagnostic equipment (MRI machines, linear accelerators), the lease versus service component split can be significant. The discount rate for healthcare entities should reflect the entity's borrowing capacity, which for publicly funded entities may differ substantially from commercial rates.

ROU Asset Depreciation for Healthcare

Healthcare ROU assets for specialised medical equipment require consideration of economic useful life. Rapid technological advancement in medical imaging and diagnostic equipment means the useful life for ROU asset depreciation may be shorter than the lease term — for example, a CT scanner leased for 7 years may have a useful life of only 5 years due to technological obsolescence. If the useful life is shorter and there is no purchase option reasonably certain to be exercised, depreciate over the shorter period (IFRS 16.32).

Industry-Specific Considerations

Publicly funded healthcare providers must consider the interaction between IFRS 16 and government grant accounting under IAS 20. Where lease payments are funded by government grants, the grant income recognition pattern should be consistent with the expense recognition pattern. Under IFRS 16, the combined depreciation and interest expense profile differs from the straight-line operating lease expense previously recognised, potentially creating timing mismatches between grant income and lease-related expenses. CQC-regulated entities in England must also consider whether the lease creates a regulated activity requiring notification.

Worked Example: 5-Year MRI Scanner Lease

A private hospital leases an MRI scanner for 5 years commencing 1 June 2025. Monthly lease payments are €6,500 payable in arrears (including maintenance of €1,200 that is separated). The hospital's IBR is 4.8%. Initial direct costs are €3,000 for installation and calibration.

Initial Liability
€281,503
Initial ROU Asset
€284,503
Total Interest
€36,497
Total Payments
€318,000

Audit Considerations

Healthcare entity auditors should consider CQC (England), HIQA (Ireland), or equivalent regulatory implications of lease commitments. For NHS trusts, the Group Accounting Manual provides specific IFRS 16 application guidance. ISA 250 (Revised) requires consideration of healthcare-specific laws and regulations that may affect lease arrangements.

Frequently Asked Questions — Healthcare

How do I separate the service component from a medical equipment lease?
Allocate the consideration between the lease component (use of the equipment) and the non-lease component (maintenance, consumables, calibration) based on their relative standalone prices (IFRS 16.13). Use observable standalone prices where available — for example, the cost of a separate maintenance contract for similar equipment. Alternatively, apply the practical expedient in IFRS 16.15 to treat the entire contract as a lease, but this must be elected by class of underlying asset.
What discount rate should a publicly funded healthcare entity use?
Publicly funded entities often have access to subsidised borrowing (e.g., Public Works Loan Board rates in the UK). The IBR should reflect the actual rate the entity would pay for secured borrowing, not commercial market rates. For NHS trusts, HM Treasury and DHSC guidance provides direction on appropriate discount rates. The rate should be specific to the lease term and currency.
Does the low-value asset exemption apply to medical devices?
The low-value exemption applies to assets with a value of approximately US$5,000 or less when new (IFRS 16.B3). Most medical devices exceed this threshold (even basic monitoring equipment typically exceeds $5,000 new), so the exemption is rarely applicable in healthcare. Items that may qualify include basic ward equipment, standard wheelchairs, or low-cost monitoring devices.
How do I handle a lease for healthcare premises with grant-funded fit-out?
Separate the lease accounting from the grant accounting. The lease liability and ROU asset are measured under IFRS 16 as normal. Government grants towards fit-out costs are accounted for under IAS 20 — either deducted from the asset cost or recognised as deferred income. If the grant funds lease payments, recognise grant income systematically over the periods in which the related lease expenses are recognised.
What happens when a healthcare entity terminates a lease early due to service reconfiguration?
Early termination of a lease results in derecognition of the ROU asset and lease liability. Any difference, plus any termination penalty, is recognised in profit or loss. For NHS and publicly funded entities, service reconfiguration may involve DHSC approval processes that affect the timing of derecognition. Assess whether any impairment trigger exists before the formal termination date.

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