Instruction for the Application of the Chart of Accounts for Leasing Companies

1
Based on Article 2, paragraph 3 of the Rulebook on the Chart of Accounts for Leasing Companies ("Narodne novine" No. 63/14, 132/17, and 142/22), the Croatian Financial Services Supervisory Agency, at the meeting of the Board of Directors held on December 21, 2022, adopts INSTRUCTION FOR THE APPLICATION OF THE CHART OF ACCOUNTS FOR LEASING COMPANIES

1. INTRODUCTION
   This Instruction prescribes the method of applying the chart of accounts established by the Rulebook on the Chart of Accounts for Leasing Companies ("Narodne novine" No. 63/14, 132/17, and 142/22, hereinafter: the Rulebook).

2. MAINTENANCE OF BUSINESS BOOKS
   A leasing company is obliged to maintain business books, business documentation, and other records in a manner that allows verification of whether the leasing company operates in compliance with applicable regulations and professional standards, using accounts at least to the extent specified by the chart of accounts prescribed by the Rulebook. A leasing company may additionally prescribe accounts for its own needs within the framework of certain accounts prescribed by the Rulebook.

3. APPLICATION OF THE CHART OF ACCOUNTS
   A leasing company is obliged to apply the prescribed chart of accounts in accordance with this Instruction when maintaining the general ledger for transactions conducted in its own name and for its own account, or for all transactions included in the balance sheet of the leasing company.
   A leasing company prepares financial and additional reports submitted to the Croatian Financial Services Supervisory Agency (hereinafter: the Agency) based on business books, applying the accounts prescribed by the Rulebook and this Instruction.

4. SECTORAL CLASSIFICATION OF INSTITUTIONAL UNITS
   Leasing companies are required to classify certain categories of their assets and liabilities in business books by institutional sectors.
   Institutional units are classified into sectors in accordance with regulations governing the sectoral classification of institutional sectors.
   The allocation of business entities (legal and natural persons) is carried out in accordance with the National Classification of Activities.

5. CONTENT OF ACCOUNTS IN THE CHART OF ACCOUNTS
   5.1. GENERAL NOTES
   On the prescribed accounts of the chart of accounts for leasing companies, undue receivables and liabilities with fixed maturity dates are shown according to the agreed (original) maturity dates, and upon expiration of the agreed maturity date, uncollected receivables are transferred to the prescribed accounts for due receivables. Information about the expected date of return or settlement of non-monetary assets and liabilities, such as inventories and provisions, is also useful regardless of whether assets and liabilities are classified as short-term/short-term or long-term/long-term. Given the reporting requirements of the Agency prescribed by the Rulebook on the structure and content as well as the method and deadlines for submission of financial and additional reports of leasing companies ("Narodne novine" No. 60/14, 132/17, and 142/22), the Rulebook on the capital of leasing companies ("Narodne novine" No. 60/14 and 142/22), as well as other legal and sub-legal regulations and publication requirements under the provisions of International Financial Reporting Standards, a leasing company is obliged to ensure additional information in auxiliary business books, in addition to those prescribed by the chart of accounts for leasing companies. In the chart of accounts, on the accounts for the correction of value of long-term and short-term assets, separate recording and monitoring of corrections by individual types of assets is provided. If a leasing company forms value corrections by type of asset while simultaneously monitoring tax treatment, it must ensure that each value correction account can be broken down in the first step by type of asset, and thereafter by tax treatment. The function and content of the accounts of the chart of accounts for leasing companies are specified below.

5.2. CLASS 0 – LONG-TERM ASSETS
On the account groups of this class, long-term intangible and tangible assets, long-term financial assets, and long-term receivables are shown.
Additionally, investments in property are shown in this class in accordance with the provisions of IAS 40 Investment Property.

5.2.1. GROUP 00 - INTANGIBLE ASSETS
Within the account group 00, the cost of investment in long-term intangible assets and the impairment of the aforementioned assets are shown.
On accounts 000 to 005, the value of assets that can be considered long-term intangible assets in accordance with International Financial Reporting Standards is recorded, while value corrections for accrued depreciation and impairments of intangible assets are recorded within account 009.
On accounts of group 006 and 007, advance payments for long-term intangible assets and investments during the preparation of such assets are shown (advance payments and investments made before the start of using the acquired assets for the activities of the leasing company). Upon completion of the investment, the recorded costs shown on these accounts are transferred to the corresponding accounts of group 000 to 005.

5.2.2. GROUP 01 - TANGIBLE ASSETS IN OPERATING LEASES
On the accounts of group 01, tangible assets in operating leases are shown in accordance with IAS 17 Leases. The leasing company presents the aforementioned assets in the balance sheet distributed by lease objects (land, buildings, passenger vehicles, commercial vehicles, vessels, aircraft, installations, machinery, transport equipment, and other). On accounts 010 to 016, the cost of tangible assets in operating leases, value corrections for accrued depreciation, and impairments, or value adjustments (in case of deviation of recoverable amount from book value), are shown. By cost of investment, we mean the costs of acquiring long-term tangible assets in the sense of IAS 16 Property, Plant and Equipment. Initial direct costs incurred by the leasing company in negotiating and arranging an operating lease are added to the book value of the asset given in operating lease and recognized as an expense during the lease period on the same basis as lease revenue. The depreciation policy for assets given in operating lease should be consistent with the leasing company's usual depreciation policy for similar assets, and the depreciation cost should be calculated in accordance with IAS 16 Property, Plant and Equipment. In calculating the depreciation cost, the leasing company uses depreciation rates consistent with the estimated useful life of the tangible assets given in operating lease, taking into account the residual value of the lease objects at the end of the estimated useful life. The choice of depreciation method and estimation of useful life requires judgment to be made in accordance with IAS 16 Property, Plant and Equipment, or IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, so that the allocation of the total depreciable amount to individual years during the useful life enables the most objective matching of depreciation as an expense with realized revenues, or enables the implementation of the basic economic principle of matching revenues and expenses in the same time period. Accordingly, when determining the useful life of an asset, a number of factors must be considered, including legal or similar restrictions related to the use of the asset, such as the expiration date of the lease agreement. For the purpose of determining the impairment of assets given in operating lease, the leasing company applies IAS 36 Impairment of Assets. On the accounts of group 017, advance payments for tangible assets in operating leases are shown, while investments during the preparation of such assets (investments made before the start of using the acquired assets for the activities of the leasing company) are recorded within individual accounts of group 018. Upon completion of preparation, the amount of investment costs shown on these accounts is transferred to the corresponding accounts of group 010 - 016. Value corrections for advance payments made and investments during the preparation of assets must be shown separately within special
accounts.

5.2.3. GROUP 02 - TANGIBLE ASSETS - OWN
On the accounts of group 02, own long-term tangible assets are shown in accordance with IAS 16 – Property, Plant and Equipment and IAS 36 – Impairment of Assets.
On accounts 020 to 026, the cost of investment in own tangible assets, value corrections for accrued depreciation and impairments, or value adjustments of the aforementioned assets (in case of deviation of recoverable amount from book value), are shown.
By cost of investment, we mean the costs of acquiring long-term tangible assets in the sense of IAS 16 Property, Plant and Equipment. The amount of value correction for accrued depreciation and impairments, or value adjustment of long-term assets, the leasing company regulates by its accounting policy in accordance with IAS 16 Property, Plant and Equipment and IAS 36 Impairment of Assets. On the accounts of group 027, advance payments for own long-term tangible assets are shown, while investments during the preparation of such assets are recorded within individual accounts of group 028. Upon completion of preparation, the amount of investment costs shown on these accounts is transferred to the corresponding accounts of group 020 - 026. Value corrections for advance payments made and investments during the preparation of assets must be shown separately within special accounts.

5.2.4. GROUP 03 – LONG-TERM FINANCIAL ASSETS
On the accounts of group 03, investments in subsidiaries, associates, and joint ventures, investments in long-term securities (except investments in joint ventures, associated companies, and related companies (subsidiaries)), and loans and deposits granted are shown, the amounts of which are expected to be realized more than twelve months from the balance sheet date. In addition, other long-term financial assets are shown in this group of accounts. Within account 031-033, investments in subsidiaries (related companies), associates, and joint ventures are shown in accordance with International Financial Reporting Standards that prescribe the accounting treatment for such investments. Within account 035 - Investments in long-term securities, placements in debt and equity securities are shown, except investments in joint ventures, associated, and related companies (subsidiaries). The leasing company ensures analytical accounts in the analytical records on account 035 by types of security portfolios, with a separate account provided for each portfolio for securities denominated in euros and those denominated in foreign currency but payable in euros (currency clause), and those denominated and payable in foreign currency. The leasing company also ensures in analytical bookkeeping that accounts for debt instruments are broken down into accounts for separate monitoring of: nominal amount, premium, and discount. Within account 036 – Long-term loans granted, loans granted with a maturity longer than 1 year are shown in total amount, reduced by repaid principal and principal with maturity up to 1 year, and value correction of loans with maturity longer than 1 year. The leasing company ensures data on the term structure of loans, calculated according to remaining maturities, in auxiliary business books. Within the agreed maturity dates, the leasing company ensures that in auxiliary business books within account 036, loans are broken down by sectoral affiliation of the loan user and by breakdown of loans into euro loans granted, loans with currency clause, and foreign currency loans. On account 0369, value correction based on value adjustment of loans granted is shown, which the leasing company determines in accordance with IFRS 9 Financial Instruments. These accounts have a credit balance and reduce the amount shown in the balance sheet (included in netting). Namely, for the amount of value correction of loans granted, expenses are increased by debiting account 7250 and crediting account 0369. For the amount of decrease in value correction, which may result from a reduced degree of risk of placement or due to collection of receivables for which value correction was previously carried out, account 0369 is debited and account 7250 is credited. The leasing company may, for the purpose of separate monitoring of the decrease in value correction, appropriately prescribe a special revenue account based on the decrease in value correction of receivables within the
group of accounts 77. In the case of final write-off of receivables for which value correction has already been performed, account 0369 is debited and the receivable account is credited, which is definitively written off as a balance sheet position, and possibly transferred to off-balance sheet records, where it is recorded until further notice as an off-balance sheet position. Within account 037 – Long-term deposits and guarantees granted, the amount of deposits and guarantees with a maturity longer than 1 year must be shown. Within account 038 – Other long-term financial assets, the value of long-term financial assets not previously mentioned must be shown.

5.2.5. GROUP 04 – LONG-TERM RECEIVABLES
On account 040 of group 04, receivables based on financial leasing with a maturity longer than 1 year are shown in total amount, reduced by repaid principal and principal with maturity up to 1 year, and value correction. The valuation of placements in the form of financial leasing is carried out by the leasing company in accordance with IFRS 16 Leases. The leasing company recognizes assets it holds under financial leasing in its balance sheet and presents them as receivables in an amount equal to the net investment in the lease. Initial direct costs such as commissions and fees for legal services and internal costs often arise at the leasing company during the negotiation and arrangement of the lease. General costs incurred by the sales and marketing team are not included here. For financial leasing, initial direct costs are part of the initial measurement of financial leasing receivables and reduce the amount of revenue recognized during the lease period. Recognition of financial revenue is based on a base that reflects a constant periodic rate of return on the net investment of the leasing company relating to financial leasing. The net investment in the lease consists of the gross investment in the lease discounted for the interest rate contained in the lease. Unearned financial income is the difference between gross and net investment in the lease. The leasing company may within account 0400 additionally prescribe accounts that will cover gross investment in lease and unearned financial income as a deduction within account 0400 so that in accordance with IFRS 16 Leases it presents receivables in an amount equal to the net investment in the lease. Within the agreed maturity dates, the leasing company ensures that in auxiliary business books, within account 040, receivables based on financial leasing are broken down by sectoral affiliation of the recipient of the lease and by breakdown of receivables into financial leasing contracts in euros, financial leasing contracts with currency clause, and foreign currency financial leasing contracts. On account 0409, value correction based on value adjustment of receivables based on financial leasing – the financed part with an agreed maturity over 1 year, which the leasing company determines in accordance with IFRS 9 Financial Instruments, is shown. These accounts have a credit balance, which reduces the amount shown on account 0400 (included in netting). For the amount of value correction of placement carried out, expenses are increased by debiting account 7251 and crediting account 0409. For the amount of decrease in value correction, which may result from a reduced degree of risk of placement or due to collection of receivables for which value correction was previously carried out, account 0409 is debited and account 7251 is credited. The leasing company may, for the purpose of separate monitoring of the decrease in value correction, appropriately prescribe a special revenue account based on the
decrease in value correction of receivables within the group of accounts 77. In the case of final write-off of receivables for which value correction was previously performed, account 0409 is debited and the receivable account is credited, and it is not shown as a balance sheet position but can be transferred to off-balance sheet records, where it is recorded until further notice as an off-balance sheet position. On the accounts of group 042 – Other long-term receivables, all long-term receivables not previously mentioned are recorded.

5.2.6. GROUP 05 – TANGIBLE ASSETS GIVEN FOR RENT AND LEASE
On the accounts of group 05, tangible assets given for rent and lease are shown, distributed by type of asset, in accordance with IAS 16 Property, Plant and Equipment.
On account 050, the cost of tangible assets given for rent, value correction for accrued depreciation, and impairments, or value adjustments (in case of deviation of recoverable amount from book value), are shown.
On account 051, the cost of tangible assets given for lease, value correction for accrued depreciation, and impairments, or value adjustments (in case of deviation of recoverable amount from book value), are shown.
If tangible assets were previously recorded in inventories, the cost of tangible assets given for lease and rent represents the value of the asset from inventory, while in the case where tangible assets are not recorded in inventories but are directly given for rent or lease, the cost thereof represents the net book value which is written off from the account of assets given in operating lease or net value of receivables based on financial leasing (value of receivables reduced by value correction) which is written off from the receivable account. Depreciation of tangible assets given for rent and lease is calculated in accordance with IAS 16 Property, Plant and Equipment, and impairment in accordance with IAS 36 Impairment of Assets.

5.2.7. GROUP 06 – INVESTMENTS IN PROPERTY
Investments in property relate to property held by the owner or recipient of the lease in financial leasing, for the purpose of earning from renting and/or appreciation in value in accordance with IAS 40 Investment Property.

5.3. CLASS 1 – SHORT-TERM ASSETS
On the account groups of this class, cash at bank and in hand, short-term financial assets (with maturity up to 1 year and due portion), short-term receivables from lease recipients from lease operations, receivables based on rent and lease, receivables for taxes and other public levies, other short-term receivables, and prepaid expenses for future periods and undue revenue collection are shown. In addition, deferred tax assets are shown within class 1.

5.3.1. GROUP 10 – CASH AT BANK AND IN HAND
On the accounts of group 10, monetary funds at current account, cash in hand, and other monetary funds, and value correction of the aforementioned assets are maintained.

5.3.2. GROUP 11 – SHORT-TERM FINANCIAL ASSETS
The function of accounts within account 111 (Investments in related companies), 112 (Investments in associates), and 113 (Investments in joint ventures) is analogous to the described functions of accounts 031 (Investments in subsidiaries), 032 (Investments in associates), and 033 (Investments in joint ventures).
Within account 115 (Investments in short-term securities), placements in debt and equity securities with a maturity up to 1 year are shown, except investments in joint ventures, associated companies, and related companies (subsidiaries). The function of accounts within group 115 (investments in short-term securities) is analogous to the described function of group 035 (investments in long-term securities). Within account 116 (Short-term loans granted), the value of loans granted with a maturity up to 1 year reduced by repaid principal as well as current maturities of granted long-term loans and due receivables based on loans granted and value correction of short-term loans granted is shown. Within the agreed maturity dates, the leasing company ensures in auxiliary business books the breakdown of loans by sectoral affiliation of the user as well as the breakdown of loans into euro loans granted, loans with currency clause, and foreign currency loans. Within account 117 (Short-term deposits and guarantees granted), the amount of deposits and guarantees with a maturity up to 1 year must be shown. Within account 118 (Other short-term financial assets), the value of short-term financial assets not previously mentioned must be shown.

5.3.3. GROUP 12 – SHORT-TERM RECEIVABLES FROM LEASE RECIPIENTS FROM LEASE OPERATIONS
On account 120 of group 12, due receivables based on financial leasing and receivables based on financial leasing with a maturity up to 1 year are shown in total amount, reduced by repaid principal and value correction. The valuation of placements in the form of financial leasing is carried out by the leasing company in accordance with IFRS 16 Leases. The function of account 1209 (value correction of receivables based on financial leasing) is analogous to the described function of account 0409 (value correction of long-term receivables based on financial leasing). On accounts of group 121, due uncollected and invoiced undue receivables based on operating leasing are shown in total amount by operating lease agreements, reduced by value correction. Value correction of receivables based on operating leasing is determined in accordance with the provisions of IFRS 9 Financial Instruments, and is shown on account 1219 (this account has a credit balance, and reduces the amount shown in the balance sheet (included in netting)). For the amount of value correction of placement carried out, expenses are increased by debiting account 7252 and crediting account 1219. For the amount of decrease in value correction, which may result from a reduced degree of risk of placement or due to collection of receivables for which value correction was previously carried out, account 1219 is debited and account 7252 is credited. The leasing company may, for the purpose of separate monitoring of the decrease in value correction, appropriately prescribe a special revenue account based on the decrease in value correction of receivables within the group of accounts 77.

5.3.4. GROUP 13 – ADVANCE PAYMENTS
On the accounts of group 13, advance payments for leasing company expenses and value correction of these advance payments are shown.

5.3.5. GROUP 15 – OTHER SHORT-TERM RECEIVABLES
On the accounts of group 15, short-term receivables not covered by the previously mentioned groups are shown.

5.3.6. GROUP 16 – RECEIVABLES FROM THE STATE AND OTHER INSTITUTIONS, RECEIVABLES FROM EMPLOYEES, AND OTHER RECEIVABLES
On the accounts of group 16, receivables from the state and other institutions, receivables from employees, and other receivables are shown.

5.3.7. GROUP 17 – RECEIVABLES FROM LEASE
On the accounts of group 17, due uncollected and invoiced undue receivables based on lease and value correction of the aforementioned receivables are shown.

5.3.8. GROUP 18 – RECEIVABLES FROM RENT
On the accounts of group 18, due uncollected and invoiced undue receivables based on rent and value correction of the aforementioned receivables are shown.

5.3.9. GROUP 19 – PREPAID EXPENSES FOR FUTURE PERIODS AND UNDUE REVENUE COLLECTION
Within account 190, prepaid expenses for future periods (up to 12 months) are shown.
On account 191, deferred tax assets recognized in accordance with IAS 12 Income Taxes are shown.
On account 192, undue revenue collection is shown.

5.4. CLASS 2 – SHORT-TERM LIABILITIES, PROVISIONS FOR EXPENSES AND RISKS, AND DEFERRED PAYMENTS AND REVENUE OF FUTURE PERIOD
On certain account groups of this class, liabilities on issued short-term securities, liabilities to suppliers, liabilities to related companies and from joint ventures are shown.