Wiley International Trends in Financial Reporting under IFRS: Including Comparisons with US GAAP, Chinese GAAP, and Indian GAAP

CHAPTER 37

LEASES (IAS 17)

1. OBJECTIVE

1.1 This Standard prescribes the accounting treatment and disclosures for finance and operating leases in the financial statements of lessees and lessors.

1.2 It cannot be used as a basis to measure properties that are held by lessees and lessors which qualify as investment property under International Accounting Standard (IAS) 40, Investment Property, and biological assets in accordance with IAS 41, Agriculture, that are held by lessees and lessors.

1.3 This Standard is in the process of being replaced with a common leasing standard. It is expected that the International Accounting Standards Board (IASB) and the US-based Financial Accounting Standards Board (FASB) will issue a revised Exposure Draft in the second quarter of 2012.

2. SYNOPSIS OF THE STANDARD

The summary of this Standard and its key terms follows.

2.1 Leases can be classified as financing and operating in nature. The basis of classification of these two types of leases is the extent to which the risks and rewards related to the ownership of the assets are transferred to the lessee and lessor.

2.1.1 A lease is classified as a finance lease if it transfers substantially all the risks and rewards of ownership to the lessee. If it does not transfer the risks and rewards of ownership, it is classified as an operating lease.

2.1.2 The classification of a lease is made at the commencement of the lease. In determining whether a lease is a financing or operating lease, the substance ...