Ias 17 leases pdf

IAS 17 Leases prescribes the accounting policies and disclosures applicable to leases, both for lessees and lessors. Leases are required to be classified as either finance leases which transfer substantially all the risks and rewards of ownership, and give rise to asset and liability recognition by the lessee and a receivable by the lessor and operating leases which result in expense recognition by the lessee, with the asset remaining recognised by the lessor.

IAS 17 was reissued in December and applies to annual periods beginning on or after 1 January The objective of IAS 17 is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosures to apply in relation to finance and operating leases.

IAS 17 applies to all leases other than lease agreements for minerals, oil, natural gas, and similar regenerative resources and licensing agreements for films, videos, plays, manuscripts, patents, copyrights, and similar items. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incident to ownership.

All other leases are classified as operating leases. Classification is made at the inception of the lease. Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form.

Situations that would normally lead to a lease being classified as a finance lease include the following: [IAS When a lease includes both land and buildings elements, an entity assesses the classification of each element as a finance or an operating lease separately.

In determining whether the land element is an operating or a finance lease, an important consideration is that land normally has an indefinite economic life [IAS Whenever necessary in order to classify and account for a lease of land and buildings, the minimum lease payments including any lump-sum upfront payments are allocated between the land and the buildings elements in proportion to the relative fair values of the leasehold interests in the land element and buildings element of the lease at the inception of the lease.

Incentives for the agreement of a new or renewed operating lease should be recognised by the lessee as a reduction of the rental expense over the lease term, irrespective of the incentive's nature or form, or the timing of payments. Incentives for the agreement of a new or renewed operating lease should be recognised by the lessor as a reduction of the rental income over the lease term, irrespective of the incentive's nature or form, or the timing of payments.

Manufacturers or dealer lessors should include selling profit or loss in the same period as they would for an outright sale. If artificially low rates of interest are charged, selling profit should be restricted to that which would apply if a commercial rate of interest were charged.

Under the revisions to IAS 17, initial direct and incremental costs incurred by lessors in negotiating leases must be recognised over the lease term. They may no longer be charged to expense when incurred. This treatment does not apply to manufacturer or dealer lessors where such cost recognition is as an expense when the selling profit is recognised.

For a sale and leaseback transaction that results in a finance lease, any excess of proceeds over the carrying amount is deferred and amortised over the lease term. These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Essential cookies are required for the website to function, and therefore cannot be switched off.

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