TFRS 16 Leases in Turkey: Lessee Accounting and Its Effect on the Financial Statements

Before TFRS 16, lessees showed leases classified as operating leases only as an expense. Office, warehouse, store and vehicle leases did not appear on the balance sheet. The standard is based on the view that a lessee obtains the right to use an asset for the lease term and takes on an obligation to pay for it. It therefore brings both onto the balance sheet.

This article summarises the core logic of lessee accounting and its effect on the financial statements, from a management perspective. Lessor accounting is outside its scope.

Scope and exemptions

TFRS 16 applies to contracts that convey the right to use an asset for a period of time in exchange for consideration. A lessee may elect not to apply the standard’s recognition requirements in two cases:

• Short-term leases: leases with a term of 12 months or less that do not contain a purchase option.
• Leases of low-value assets: assets whose value when new is low. The standard gives tablets and personal computers, small items of office furniture and telephones as examples (paragraph B8). The standard does not set an amount; the assessment is based on the asset’s value when new.

If these exemptions are elected, lease payments are expensed on a straight-line basis over the lease term, or on another systematic basis if that better reflects the pattern of the lessee’s benefit (paragraph 6 of the standard). The short-term lease election is made by class of underlying asset (paragraph 8).

Who applies it in Türkiye? TFRS 16 is for entities that apply TFRS. Entities applying BOBİ FRS, the Turkish financial reporting standard for large and medium-sized entities, account for leases under BOBİ FRS’s own section, which differs from TFRS 16. Those entities should follow the BOBİ FRS text. In the statutory records kept under Turkish tax legislation, lease payments are treated differently again. That difference is tracked as an adjustment when converting to TFRS.

Initial recognition

At the commencement date, the lessee:

1. Measures the lease liability: the present value of lease payments not yet paid. The discount rate is the interest rate implicit in the lease; if that rate cannot be readily determined, the lessee’s incremental borrowing rate is used.
2. Measures the right-of-use asset: the initial measurement of the lease liability + lease payments made at or before the commencement date + initial direct costs incurred by the lessee + (where relevant) an estimate of dismantling and restoration costs − lease incentives received.

The lease term covers the non-cancellable period plus periods covered by extension options the lessee is reasonably certain to exercise and by termination options the lessee is reasonably certain not to exercise (paragraph 18). This assessment directly affects the amount recognised and requires judgement.

Subsequent measurement and the income statement

• The right-of-use asset is depreciated over the shorter of its useful life and the lease term; if ownership transfers to the lessee or the lessee is expected to exercise a purchase option, it is depreciated over the useful life (paragraph 32).
• The lease liability increases as interest accrues and decreases as payments are made.

As a result, the income statement shows depreciation and interest expense instead of “rent expense”. Interest expense is higher in the early years of a lease, when the liability balance is larger. Total expense therefore appears front-loaded.

Measure	Before TFRS 16 (operating lease)	After TFRS 16
EBITDA	Rent expense reduces EBITDA	No rent expense (except exempt and variable payments); EBITDA increases
Operating profit	Includes rent expense	Includes depreciation; the difference depends on the contract structure
Finance costs	Rent not included	Interest on the lease liability added
Total assets and liabilities	No lease	Right-of-use asset and lease liability added

This is the general direction; the size of the effect depends on the term and amount of the lease contracts.

Effect on the statement of cash flows

Total cash outflow does not change; only the classification does:

• Payments of the principal portion of the lease liability are presented within financing activities.
• The interest portion is classified according to the policy the entity has chosen for interest paid under TMS 7 (IAS 7). Because the requirements on classifying interest paid may change with future amendments to the standards, check the KGK text in force for the period concerned.
• Payments for short-term and low-value leases, and variable payments not included in the liability, remain in operating activities.

Cash flow from operating activities therefore looks higher, even though total cash is unchanged.

Key implications for management

1. Bank agreements: Covenants defined by ratios such as net debt / EBITDA or debt / equity give different results depending on whether the lease liability is included in debt. Check how the definition is worded in the agreement.
2. Performance measures and bonuses: EBITDA-based targets should not be interpreted without adjusting for the standard’s effect.
3. Data requirements: All lease contracts need to be held in an inventory with term, payment, escalation and option information. Contract modifications and index-linked rent increases may require remeasurement of the liability.
4. Areas of judgement: Assessments of the lease term, the incremental borrowing rate and whether a contract contains a lease should be documented.

Common mistakes

• Using only the contractual term without assessing extension options.
• Applying a single discount rate to all leases regardless of term and currency.
• Not remeasuring the liability when rents change with an index or rate.
• Comparing EBITDA in management reports without explaining the TFRS 16 effect.

What it means for management

TFRS 16 does not change total cash outflow, but it significantly changes how the financial statements look and the ratios built on them. In lease-intensive businesses, the effect of the standard should be explained clearly in discussions with banks and shareholders. Showing EBITDA before and after TFRS 16 in the management report makes comparison easier. For the conversion process see TFRS conversion, and for the choice of framework see BOBİ FRS or TFRS?.

Sources last checked: 21 October 2026