IFRS Essentials

IAS 17 LEASES

1 INTRODUCTION AND SCOPE

IAS 17 specifies the accounting treatment of leases from the perspective of both lessees and lessors (IAS 17.1). A lease is an agreement in which the lessor conveys the right to use an asset for an agreed period of time to the lessee in return for a payment or series of payments (IAS 17.4).

The following are excluded from the scope of the standard (IAS 17.2):

• Leases to explore for or use minerals, oil, natural gas, and similar non-regenerative resources.
• Licensing agreements for motion picture films, video recordings, plays, manuscripts, patents, copyrights, and similar items.

Specific issues that arise when manufacturers or dealers act as lessors of their products (e.g. in the automotive industry) are not dealt with in this section of the book.

2 DEFINITIONS RELATING TO TIME

The inception of the lease is the earlier of the following (IAS 17.4):

• Date of the lease agreement.
• Date of commitment by the parties to the principal provisions of the lease.

By contrast, the commencement of the lease term is the date from which the lessee is entitled to exercise its right to use the leased asset (IAS 17.4).

The lease term comprises (IAS 17.4):

• the non-cancellable period for which the lessee has contracted to lease the asset, as well as
• any further terms for which the lessee has the option to continue to lease the asset (with or without further payment) when at the inception of the lease it is reasonably certain that the lessee will exercise the ...