Significant accounting developments (April 2026)
2026–2 | 21 April 2026
Learn about the latest financial reporting developments and our guidance on how to respond.
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In this alert
| 1 | DTF adopts cost model for subsequent measurement of non-concessionary ROU assets |
Update 1: DTF adopts cost model for subsequent measurement of non-concessionary ROU assets
Key message
This alert deals only with non concessionary leases. DTF has amended FRD 104 Leases to change the subsequent measurement of right of use (RoU) assets arising from non concessionary leases – moving from the revaluation model to the cost model, effective from periods ending on or after 30 June 2026.
Concessionary leases are not affected by this change. For clarity, concessionary leases are those leases that have significantly below-market terms and conditions principally to enable the entity to further its objectives [Basis of conclusion AASB 2018-8].
In summary
| Lease type | Initial recognition | Subsequent measurement basis |
|---|---|---|
| Concessionary leases | Cost – apply usual principles of AASB 16 (No change) | Cost model (No change) |
| Non-Concessionary leases | Cost – apply usual principles of AASB 16 (No change) | Cost model (Changed from revaluation model) |
Impacted entities
All Victorian public sector entities controlled by the State who are lessees and governed by FRD 104.
Transition approach
- The change is treated as a change in accounting policy which entities shall disclose in their financial statements in the first year of change.
- Entities must apply a modified retrospective approach to transition to the cost model, whereby:
- the closing carrying amount of ROU assets measured under the revaluation model at the end of the previous reporting period becomes the opening carrying amount (deemed cost)
- thereafter entities apply the cost model as usual, which includes, assessing the ROU asset balance for impairment, application of depreciation and adjusting the carrying amount of ROU asset for any remeasurement of the lease liability
- comparative information is not restated and
- any revaluation surplus relating to ROU assets recognised in prior periods will be transferred to accumulated surplus only when the asset is derecognised.
What we recommend
Given the change applies to financial statements for the year ending 30 June 2026, entities need to take action now to support smooth implementation. In particular, we recommend that entities:
- identify all non-concessionary leases within their lease portfolio, particularly where ROU asset balances are significant
- understand, plan for and prepare impairment assessments, including reviewing systems and models required to support impairment calculations and related estimates
- review and apply relevant DTF guidance, as appropriate
- prepare documentation to support the required financial statement disclosures.
Transition resources
- DTF have developed guidance to assist entities in transitioning to the cost model, particularly in undertaking impairment assessments of ROU assets.
- They have also updated model financial statements to reflect the required disclosures.
- In addition to FRD 104, they have also updated other FRDs, including FRD 103 Non-financial physical assets and FRD 106 Impairment of Assets to reflect consequential amendments. These are available on DTF’s website.