EC staff consolidated version as of 24 March 2010,

FOR INFORMATION PRPO!E! ON"#

EN $ E IA! 1%
International Acco&ntin' !tandard 1%
"eases
O()ective
1 The o()ective of this !tandard is to *rescri(e, for lessees and lessors, the a**ro*riate acco&ntin' *olicies and
disclos&re to a**l+ in relation to leases,
!co*e
2 This !tandard shall (e a**lied in acco&ntin' for all leases other than-
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leases to e0*lore for or &se 1inerals, oil, nat&ral 'as and si1ilar non2re'enerative reso&rces3
and
licensin' a'ree1ents for s&ch ite1s as 1otion *ict&re fil1s, video recordin's, *la+s,
1an&scri*ts, *atents and co*+ri'hts,
4o5ever, this !tandard shall not (e a**lied as the (asis of 1eas&re1ent for-
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*ro*ert+ held (+ lessees that is acco&nted for as invest1ent *ro*ert+ .see IA! 40 Invest1ent
Pro*ert+/3
invest1ent *ro*ert+ *rovided (+ lessors &nder o*eratin' leases .see IA! 40/3
(iolo'ical assets held (+ lessees &nder finance leases .see IA! 41 A'ric&lt&re/3 or
(iolo'ical assets *rovided (+ lessors &nder o*eratin' leases .see IA! 41/,
This !tandard a**lies to a'ree1ents that transfer the ri'ht to &se assets even tho&'h s&(stantial services (+
the lessor 1a+ (e called for in connection 5ith the o*eration or 1aintenance of s&ch assets, This !tandard
does not a**l+ to a'ree1ents that are contracts for services that do not transfer the ri'ht to &se assets fro1
one contractin' *art+ to the other,
7efinitions
4 The follo5in' ter1s are &sed in this !tandard 5ith the 1eanin's s*ecified-
A lease is an a'ree1ent 5here(+ the lessor conve+s to the lessee in ret&rn for a *a+1ent or series of
*a+1ents the ri'ht to &se an asset for an a'reed *eriod of ti1e,
A finance lease is a lease that transfers s&(stantiall+ all the ris8s and re5ards incidental to o5nershi*
of an asset, Title 1a+ or 1a+ not event&all+ (e transferred,
An o*eratin' lease is a lease other than a finance lease,
A non2cancella(le lease is a lease that is cancella(le onl+-
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&*on the occ&rrence of so1e re1ote contin'enc+3
5ith the *er1ission of the lessor3
if the lessee enters into a ne5 lease for the sa1e or an e9&ivalent asset 5ith the sa1e lessor3 or
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EC staff consolidated version as of 24 March 2010,
FOR INFORMATION PRPO!E! ON"#
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EN $ E IA! 1%
&*on *a+1ent (+ the lessee of s&ch an additional a1o&nt that, at ince*tion of the lease,
contin&ation of the lease is reasona(l+ certain,
The ince*tion of the lease is the earlier of the date of the lease a'ree1ent and the date of co11it1ent
(+ the *arties to the *rinci*al *rovisions of the lease, As at this date-
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a lease is classified as either an o*eratin' or a finance lease3 and
in the case of a finance lease, the a1o&nts to (e reco'nised at the co11ence1ent of the lease
ter1 are deter1ined,
The co11ence1ent of the lease ter1 is the date fro1 5hich the lessee is entitled to e0ercise its ri'ht to
&se the leased asset, It is the date of initial reco'nition of the lease .ie the reco'nition of the assets,
lia(ilities, inco1e or e0*enses res&ltin' fro1 the lease, as a**ro*riate/,
The lease ter1 is the non2cancella(le *eriod for 5hich the lessee has contracted to lease the asset
to'ether 5ith an+ f&rther ter1s for 5hich the lessee has the o*tion to contin&e to lease the asset, 5ith
or 5itho&t f&rther *a+1ent, 5hen at the ince*tion of the lease it is reasona(l+ certain that the lessee
5ill e0ercise the o*tion,
Mini1&1 lease *a+1ents are the *a+1ents over the lease ter1 that the lessee is or can (e re9&ired to
1a8e, e0cl&din' contin'ent rent, costs for services and ta0es to (e *aid (+ and rei1(&rsed to the
lessor, to'ether 5ith-
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for a lessee, an+ a1o&nts '&aranteed (+ the lessee or (+ a *art+ related to the lessee3 or
for a lessor, an+ resid&al val&e '&aranteed to the lessor (+-
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the lessee3
a *art+ related to the lessee3 or
a third *art+ &nrelated to the lessor that is financiall+ ca*a(le of dischar'in' the
o(li'ations &nder the '&arantee,
4o5ever, if the lessee has an o*tion to *&rchase the asset at a *rice that is e0*ected to (e s&fficientl+
lo5er than fair val&e at the date the o*tion (eco1es e0ercisa(le for it to (e reasona(l+ certain, at the
ince*tion of the lease, that the o*tion 5ill (e e0ercised, the 1ini1&1 lease *a+1ents co1*rise the
1ini1&1 *a+1ents *a+a(le over the lease ter1 to the e0*ected date of e0ercise of this *&rchase o*tion
and the *a+1ent re9&ired to e0ercise it,
Fair val&e is the a1o&nt for 5hich an asset co&ld (e e0chan'ed, or a lia(ilit+ settled, (et5een
8no5led'ea(le, 5illin' *arties in an ar1:s len'th transaction,
Econo1ic life is either-
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the *eriod over 5hich an asset is e0*ected to (e econo1icall+ &sa(le (+ one or 1ore &sers3 or
the n&1(er of *rod&ction or si1ilar &nits e0*ected to (e o(tained fro1 the asset (+ one or
1ore &sers,
sef&l life is the esti1ated re1ainin' *eriod, fro1 the co11ence1ent of the lease ter1, 5itho&t
li1itation (+ the lease ter1, over 5hich the econo1ic (enefits e1(odied in the asset are e0*ected to (e
cons&1ed (+ the entit+,
;&aranteed resid&al val&e is-
.a/ for a lessee, that *art of the resid&al val&e that is '&aranteed (+ the lessee or (+ a *art+
related to the lessee .the a1o&nt of the '&arantee (ein' the 1a0i1&1 a1o&nt that co&ld, in
an+ event, (eco1e *a+a(le/3 and
for a lessor, that *art of the resid&al val&e that is '&aranteed (+ the lessee or (+ a third *art+
&nrelated to the lessor that is financiall+ ca*a(le of dischar'in' the o(li'ations &nder the
'&arantee,
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EC staff consolidated version as of 24 March 2010,
FOR INFORMATION PRPO!E! ON"#
EN $ E IA! 1%
n'&aranteed resid&al val&e is that *ortion of the resid&al val&e of the leased asset, the realisation of
5hich (+ the lessor is not ass&red or is '&aranteed solel+ (+ a *art+ related to the lessor,
Initial direct costs are incre1ental costs that are directl+ attri(&ta(le to ne'otiatin' and arran'in' a
lease, e0ce*t for s&ch costs inc&rred (+ 1an&fact&rer or dealer lessors,
;ross invest1ent in the lease is the a''re'ate of-
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the 1ini1&1 lease *a+1ents receiva(le (+ the lessor &nder a finance lease, and
an+ &n'&aranteed resid&al val&e accr&in' to the lessor,
Net invest1ent in the lease is the 'ross invest1ent in the lease disco&nted at the interest rate i1*licit in
the lease,
nearned finance inco1e is the difference (et5een-
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the 'ross invest1ent in the lease, and
the net invest1ent in the lease,
The interest rate i1*licit in the lease is the disco&nt rate that, at the ince*tion of the lease, ca&ses the
a''re'ate *resent val&e of .a/ the 1ini1&1 lease *a+1ents and .(/ the &n'&aranteed resid&al val&e to
(e e9&al to the s&1 of .i/ the fair val&e of the leased asset and .ii/ an+ initial direct costs of the lessor,
The lessee:s incre1ental (orro5in' rate of interest is the rate of interest the lessee 5o&ld have to *a+ on
a si1ilar lease or, if that is not deter1ina(le, the rate that, at the ince*tion of the lease, the lessee
5o&ld inc&r to (orro5 over a si1ilar ter1, and 5ith a si1ilar sec&rit+, the f&nds necessar+ to
*&rchase the asset,
Contin'ent rent is that *ortion of the lease *a+1ents that is not fi0ed in a1o&nt (&t is (ased on the
f&t&re a1o&nt of a factor that chan'es other than 5ith the *assa'e of ti1e .e' *ercenta'e of f&t&re
sales, a1o&nt of f&t&re &se, f&t&re *rice indices, f&t&re 1ar8et rates of interest/,
< A lease a'ree1ent or co11it1ent 1a+ incl&de a *rovision to ad)&st the lease *a+1ents for chan'es in the
constr&ction or ac9&isition cost of the leased *ro*ert+ or for chan'es in so1e other 1eas&re of cost or val&e,
s&ch as 'eneral *rice levels, or in the lessor:s costs of financin' the lease, d&rin' the *eriod (et5een the
ince*tion of the lease and the co11ence1ent of the lease ter1, If so, the effect of an+ s&ch chan'es shall (e
dee1ed to have ta8en *lace at the ince*tion of the lease for the *&r*oses of this !tandard,
The definition of a lease incl&des contracts for the hire of an asset that contain a *rovision 'ivin' the hirer an
o*tion to ac9&ire title to the asset &*on the f&lfil1ent of a'reed conditions, These contracts are so1eti1es
8no5n as hire *&rchase contracts,
=
Classification of leases
% The classification of leases ado*ted in this !tandard is (ased on the e0tent to 5hich ris8s and re5ards
incidental to o5nershi* of a leased asset lie 5ith the lessor or the lessee, Ris8s incl&de the *ossi(ilities of
losses fro1 idle ca*acit+ or technolo'ical o(solescence and of variations in ret&rn (eca&se of chan'in'
econo1ic conditions, Re5ards 1a+ (e re*resented (+ the e0*ectation of *rofita(le o*eration over the asset:s
econo1ic life and of 'ain fro1 a**reciation in val&e or realisation of a resid&al val&e,
A lease is classified as a finance lease if it transfers s&(stantiall+ all the ris8s and re5ards incidental to
o5nershi*, A lease is classified as an o*eratin' lease if it does not transfer s&(stantiall+ all the ris8s
and re5ards incidental to o5nershi*,
>eca&se the transaction (et5een a lessor and a lessee is (ased on a lease a'ree1ent (et5een the1, it is
a**ro*riate to &se consistent definitions, The a**lication of these definitions to the differin' circ&1stances of
the lessor and lessee 1a+ res&lt in the sa1e lease (ein' classified differentl+ (+ the1, For e0a1*le, this 1a+
(e the case if the lessor (enefits fro1 a resid&al val&e '&arantee *rovided (+ a *art+ &nrelated to the lessee,
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EC staff consolidated version as of 24 March 2010,
FOR INFORMATION PRPO!E! ON"#
10
EN $ E IA! 1%
Ahether a lease is a finance lease or an o*eratin' lease de*ends on the s&(stance of the transaction rather
than the for1 of the contract,B E0a1*les of sit&ations that individ&all+ or in co1(ination 5o&ld nor1all+
lead to a lease (ein' classified as a finance lease are-
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the lease transfers o5nershi* of the asset to the lessee (+ the end of the lease ter13
the lessee has the o*tion to *&rchase the asset at a *rice that is e0*ected to (e s&fficientl+ lo5er than
the fair val&e at the date the o*tion (eco1es e0ercisa(le for it to (e reasona(l+ certain, at the
ince*tion of the lease, that the o*tion 5ill (e e0ercised3
the lease ter1 is for the 1a)or *art of the econo1ic life of the asset even if title is not transferred3
at the ince*tion of the lease the *resent val&e of the 1ini1&1 lease *a+1ents a1o&nts to at least
s&(stantiall+ all of the fair val&e of the leased asset3 and
the leased assets are of s&ch a s*ecialised nat&re that onl+ the lessee can &se the1 5itho&t 1a)or
1odifications,
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11 Indicators of sit&ations that individ&all+ or in co1(ination co&ld also lead to a lease (ein' classified as a
finance lease are-
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if the lessee can cancel the lease, the lessor:s losses associated 5ith the cancellation are (orne (+
the lessee3
'ains or losses fro1 the fl&ct&ation in the fair val&e of the resid&al accr&e to the lessee .for
e0a1*le, in the for1 of a rent re(ate e9&allin' 1ost of the sales *roceeds at the end of the lease/3
and
the lessee has the a(ilit+ to contin&e the lease for a secondar+ *eriod at a rent that is s&(stantiall+
lo5er than 1ar8et rent,
.c/
12 The e0a1*les and indicators in *ara'ra*hs 10 and 11 are not al5a+s concl&sive, If it is clear fro1 other
feat&res that the lease does not transfer s&(stantiall+ all ris8s and re5ards incidental to o5nershi*, the lease is
classified as an o*eratin' lease, For e0a1*le, this 1a+ (e the case if o5nershi* of the asset transfers at the
end of the lease for a varia(le *a+1ent e9&al to its then fair val&e, or if there are contin'ent rents, as a res&lt
of 5hich the lessee does not have s&(stantiall+ all s&ch ris8s and re5ards,
"ease classification is 1ade at the ince*tion of the lease, If at an+ ti1e the lessee and the lessor a'ree to
chan'e the *rovisions of the lease, other than (+ rene5in' the lease, in a 1anner that 5o&ld have res&lted in
a different classification of the lease &nder the criteria in *ara'ra*hs %$12 if the chan'ed ter1s had (een in
effect at the ince*tion of the lease, the revised a'ree1ent is re'arded as a ne5 a'ree1ent over its ter1,
4o5ever, chan'es in esti1ates .for e0a1*le, chan'es in esti1ates of the econo1ic life or of the resid&al
val&e of the leased *ro*ert+/, or chan'es in circ&1stances .for e0a1*le, defa&lt (+ the lessee/, do not 'ive
rise to a ne5 classification of a lease for acco&ntin' *&r*oses,
C7eletedD
C7eletedD
Ahen a lease incl&des (oth land and (&ildin's ele1ents, an entit+ assesses the classification of each ele1ent
as a finance or an o*eratin' lease se*aratel+ in accordance 5ith *ara'ra*hs %$16, In deter1inin' 5hether the
land ele1ent is an o*eratin' or a finance lease, an i1*ortant consideration is that land nor1all+ has an
indefinite econo1ic life,
Ahenever necessar+ in order to classif+ and acco&nt for a lease of land and (&ildin's, the 1ini1&1 lease
*a+1ents .incl&din' an+ l&1*2s&1 &*front *a+1ents/ are allocated (et5een the land and the (&ildin's
ele1ents in *ro*ortion to the relative fair val&es of the leasehold interests in the land ele1ent and (&ildin's
ele1ent of the lease at the ince*tion of the lease, If the lease *a+1ents cannot (e allocated relia(l+ (et5een
these t5o ele1ents, the entire lease is classified as a finance lease, &nless it is clear that (oth ele1ents are
o*eratin' leases, in 5hich case the entire lease is classified as an o*eratin' lease,
16
14
1<
1<A
1=
B
!ee also !IC22% Eval&atin' the !&(stance of Transactions Involvin' the "e'al For1 of a "ease,
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EC staff consolidated version as of 24 March 2010,
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1%
EN $ E IA! 1%
For a lease of land and (&ildin's in 5hich the a1o&nt that 5o&ld initiall+ (e reco'nised for the land ele1ent,
in accordance 5ith *ara'ra*h 20, is i11aterial, the land and (&ildin's 1a+ (e treated as a sin'le &nit for the
*&r*ose of lease classification and classified as a finance or o*eratin' lease in accordance 5ith *ara'ra*hs %$
16, In s&ch a case, the econo1ic life of the (&ildin's is re'arded as the econo1ic life of the entire leased
asset,
!e*arate 1eas&re1ent of the land and (&ildin's ele1ents is not re9&ired 5hen the lessee:s interest in (oth
land and (&ildin's is classified as an invest1ent *ro*ert+ in accordance 5ith IA! 40 and the fair val&e 1odel
is ado*ted, 7etailed calc&lations are re9&ired for this assess1ent onl+ if the classification of one or (oth
ele1ents is other5ise &ncertain,
In accordance 5ith IA! 40, it is *ossi(le for a lessee to classif+ a *ro*ert+ interest held &nder an o*eratin'
lease as an invest1ent *ro*ert+, If it does, the *ro*ert+ interest is acco&nted for as if it 5ere a finance lease
and, in addition, the fair val&e 1odel is &sed for the asset reco'nised, The lessee shall contin&e to acco&nt for
the lease as a finance lease, even if a s&(se9&ent event chan'es the nat&re of the lessee:s *ro*ert+ interest so
that it is no lon'er classified as invest1ent *ro*ert+, This 5ill (e the case if, for e0a1*le, the lessee-
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occ&*ies the *ro*ert+, 5hich is then transferred to o5ner2occ&*ied *ro*ert+ at a dee1ed cost e9&al
to its fair val&e at the date of chan'e in &se3 or
'rants a s&(lease that transfers s&(stantiall+ all of the ris8s and re5ards incidental to o5nershi* of
the interest to an &nrelated third *art+, !&ch a s&(lease is acco&nted for (+ the lessee as a finance
lease to the third *art+, altho&'h it 1a+ (e acco&nted for as an o*eratin' lease (+ the third *art+,
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"eases in the financial state1ents of lessees
Finance leases
Initial reco'nition
20 At the co11ence1ent of the lease ter1, lessees shall reco'nise finance leases as assets and lia(ilities in
their state1ent of financial *ositions at a1o&nts e9&al to the fair val&e of the leased *ro*ert+ or, if
lo5er, the *resent val&e of the 1ini1&1 lease *a+1ents, each deter1ined at the ince*tion of the lease,
The disco&nt rate to (e &sed in calc&latin' the *resent val&e of the 1ini1&1 lease *a+1ents is the
interest rate i1*licit in the lease, if this is *ractica(le to deter1ine3 if not, the lessee:s incre1ental
(orro5in' rate shall (e &sed, An+ initial direct costs of the lessee are added to the a1o&nt reco'nised
as an asset,
Transactions and other events are acco&nted for and *resented in accordance 5ith their s&(stance and
financial realit+ and not 1erel+ 5ith le'al for1, Altho&'h the le'al for1 of a lease a'ree1ent is that the
lessee 1a+ ac9&ire no le'al title to the leased asset, in the case of finance leases the s&(stance and financial
realit+ are that the lessee ac9&ires the econo1ic (enefits of the &se of the leased asset for the 1a)or *art of its
econo1ic life in ret&rn for enterin' into an o(li'ation to *a+ for that ri'ht an a1o&nt a**ro0i1atin', at the
ince*tion of the lease, the fair val&e of the asset and the related finance char'e,
If s&ch lease transactions are not reflected in the lessee:s state1ent of financial *osition, the econo1ic
reso&rces and the level of o(li'ations of an entit+ are &nderstated, there(+ distortin' financial ratios,
Therefore, it is a**ro*riate for a finance lease to (e reco'nised in the lessee:s state1ent of financial *osition
(oth as an asset and as an o(li'ation to *a+ f&t&re lease *a+1ents, At the co11ence1ent of the lease ter1,
the asset and the lia(ilit+ for the f&t&re lease *a+1ents are reco'nised in the state1ent of financial *osition at
the sa1e a1o&nts e0ce*t for an+ initial direct costs of the lessee that are added to the a1o&nt reco'nised as
an asset,
It is not a**ro*riate for the lia(ilities for leased assets to (e *resented in the financial state1ents as a
ded&ction fro1 the leased assets, If for the *resentation of lia(ilities in the state1ent of financial *osition a
distinction is 1ade (et5een c&rrent and non2c&rrent lia(ilities, the sa1e distinction is 1ade for lease
lia(ilities,
21
22
26
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EC staff consolidated version as of 24 March 2010,
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24
EN $ E IA! 1%
Initial direct costs are often inc&rred in connection 5ith s*ecific leasin' activities, s&ch as ne'otiatin' and
sec&rin' leasin' arran'e1ents, The costs identified as directl+ attri(&ta(le to activities *erfor1ed (+ the
lessee for a finance lease are added to the a1o&nt reco'nised as an asset,
!&(se9&ent 1eas&re1ent
2< Mini1&1 lease *a+1ents shall (e a**ortioned (et5een the finance char'e and the red&ction of the
o&tstandin' lia(ilit+, The finance char'e shall (e allocated to each *eriod d&rin' the lease ter1 so as to
*rod&ce a constant *eriodic rate of interest on the re1ainin' (alance of the lia(ilit+, Contin'ent rents
shall (e char'ed as e0*enses in the *eriods in 5hich the+ are inc&rred,
In *ractice, in allocatin' the finance char'e to *eriods d&rin' the lease ter1, a lessee 1a+ &se so1e for1 of
a**ro0i1ation to si1*lif+ the calc&lation,
A finance lease 'ives rise to de*reciation e0*ense for de*recia(le assets as 5ell as finance e0*ense for
each acco&ntin' *eriod, The de*reciation *olic+ for de*recia(le leased assets shall (e consistent 5ith
that for de*recia(le assets that are o5ned, and the de*reciation reco'nised shall (e calc&lated in
accordance 5ith IA! 1= Pro*ert+, Plant and E9&i*1ent and IA! 6? Intan'i(le Assets, If there is no
reasona(le certaint+ that the lessee 5ill o(tain o5nershi* (+ the end of the lease ter1, the asset shall
(e f&ll+ de*reciated over the shorter of the lease ter1 and its &sef&l life,
The de*recia(le a1o&nt of a leased asset is allocated to each acco&ntin' *eriod d&rin' the *eriod of e0*ected
&se on a s+ste1atic (asis consistent 5ith the de*reciation *olic+ the lessee ado*ts for de*recia(le assets that
are o5ned, If there is reasona(le certaint+ that the lessee 5ill o(tain o5nershi* (+ the end of the lease ter1,
the *eriod of e0*ected &se is the &sef&l life of the asset3 other5ise the asset is de*reciated over the shorter of
the lease ter1 and its &sef&l life,
The s&1 of the de*reciation e0*ense for the asset and the finance e0*ense for the *eriod is rarel+ the sa1e as
the lease *a+1ents *a+a(le for the *eriod, and it is, therefore, ina**ro*riate si1*l+ to reco'nise the lease
*a+1ents *a+a(le as an e0*ense, Accordin'l+, the asset and the related lia(ilit+ are &nli8el+ to (e e9&al in
a1o&nt after the co11ence1ent of the lease ter1,
To deter1ine 5hether a leased asset has (eco1e i1*aired, an entit+ a**lies IA! 6= I1*air1ent of Assets,
"essees shall, in addition to 1eetin' the re9&ire1ents of IFR! % Financial Instr&1ents- 7isclos&res,
1a8e the follo5in' disclos&res for finance leases-
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for each class of asset, the net carr+in' a1o&nt at the end of the re*ortin' *eriod,
a reconciliation (et5een the total of f&t&re 1ini1&1 lease *a+1ents at the end of the
re*ortin' *eriod, and their *resent val&e, In addition, an entit+ shall disclose the total of
f&t&re 1ini1&1 lease *a+1ents at the end of the re*ortin' *eriod, and their *resent val&e,
for each of the follo5in' *eriods-
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.c/
.d/
.e/
not later than one +ear3
later than one +ear and not later than five +ears3
later than five +ears,
2=
2%
2?
2@
60
61
contin'ent rents reco'nised as an e0*ense in the *eriod,
the total of f&t&re 1ini1&1 s&(lease *a+1ents e0*ected to (e received &nder non2cancella(le
s&(leases at the end of the re*ortin' *eriod,
a 'eneral descri*tion of the lessee:s 1aterial leasin' arran'e1ents incl&din', (&t not li1ited
to, the follo5in'-
.i/
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.iii/
the (asis on 5hich contin'ent rent *a+a(le is deter1ined3
the e0istence and ter1s of rene5al or *&rchase o*tions and escalation cla&ses3 and
restrictions i1*osed (+ lease arran'e1ents, s&ch as those concernin' dividends,
additional de(t, and f&rther leasin',
=
EC staff consolidated version as of 24 March 2010,
FOR INFORMATION PRPO!E! ON"#
62
EN $ E IA! 1%
In addition, the re9&ire1ents for disclos&re in accordance 5ith IA! 1=, IA! 6=, IA! 6?, IA! 40 and IA! 41
a**l+ to lessees for assets leased &nder finance leases,
O*eratin' leases
66 "ease *a+1ents &nder an o*eratin' lease shall (e reco'nised as an e0*ense on a strai'ht2line (asis over
the lease ter1 &nless another s+ste1atic (asis is 1ore re*resentative of the ti1e *attern of the &ser:s
(enefit,B
For o*eratin' leases, lease *a+1ents .e0cl&din' costs for services s&ch as ins&rance and 1aintenance/ are
reco'nised as an e0*ense on a strai'ht2line (asis &nless another s+ste1atic (asis is re*resentative of the ti1e
*attern of the &ser:s (enefit, even if the *a+1ents are not on that (asis,
"essees shall, in addition to 1eetin' the re9&ire1ents of IFR! %, 1a8e the follo5in' disclos&res for
o*eratin' leases-
.a/ the total of f&t&re 1ini1&1 lease *a+1ents &nder non2cancella(le o*eratin' leases for each
of the follo5in' *eriods-
.i/
.ii/
.iii/
.(/
.c/
.d/
not later than one +ear3
later than one +ear and not later than five +ears3
later than five +ears,
64
6<
the total of f&t&re 1ini1&1 s&(lease *a+1ents e0*ected to (e received &nder non2cancella(le
s&(leases at the end of the re*ortin' *eriod,
lease and s&(lease *a+1ents reco'nised as an e0*ense in the *eriod, 5ith se*arate a1o&nts
for 1ini1&1 lease *a+1ents, contin'ent rents, and s&(lease *a+1ents,
a 'eneral descri*tion of the lessee:s si'nificant leasin' arran'e1ents incl&din', (&t not li1ited
to, the follo5in'-
.i/
.ii/
.iii/
the (asis on 5hich contin'ent rent *a+a(le is deter1ined3
the e0istence and ter1s of rene5al or *&rchase o*tions and escalation cla&ses3 and
restrictions i1*osed (+ lease arran'e1ents, s&ch as those concernin' dividends,
additional de(t and f&rther leasin',
"eases in the financial state1ents of lessors
Finance leases
Initial reco'nition
6=
6%
"essors shall reco'nise assets held &nder a finance lease in their state1ents of financial *ositions and
*resent the1 as a receiva(le at an a1o&nt e9&al to the net invest1ent in the lease,
nder a finance lease s&(stantiall+ all the ris8s and re5ards incidental to le'al o5nershi* are transferred (+
the lessor, and th&s the lease *a+1ent receiva(le is treated (+ the lessor as re*a+1ent of *rinci*al and
finance inco1e to rei1(&rse and re5ard the lessor for its invest1ent and services,
B
!ee also !IC21< O*eratin' "easesEIncentives,
%
EC staff consolidated version as of 24 March 2010,
FOR INFORMATION PRPO!E! ON"#
6?
EN $ E IA! 1%
Initial direct costs are often inc&rred (+ lessors and incl&de a1o&nts s&ch as co11issions, le'al fees and
internal costs that are incre1ental and directl+ attri(&ta(le to ne'otiatin' and arran'in' a lease, The+ e0cl&de
'eneral overheads s&ch as those inc&rred (+ a sales and 1ar8etin' tea1, For finance leases other than those
involvin' 1an&fact&rer or dealer lessors, initial direct costs are incl&ded in the initial 1eas&re1ent of the
finance lease receiva(le and red&ce the a1o&nt of inco1e reco'nised over the lease ter1, The interest rate
i1*licit in the lease is defined in s&ch a 5a+ that the initial direct costs are incl&ded a&to1aticall+ in the
finance lease receiva(le3 there is no need to add the1 se*aratel+, Costs inc&rred (+ 1an&fact&rer or dealer
lessors in connection 5ith ne'otiatin' and arran'in' a lease are e0cl&ded fro1 the definition of initial direct
costs, As a res&lt, the+ are e0cl&ded fro1 the net invest1ent in the lease and are reco'nised as an e0*ense
5hen the sellin' *rofit is reco'nised, 5hich for a finance lease is nor1all+ at the co11ence1ent of the lease
ter1,
!&(se9&ent 1eas&re1ent
6@
40
The reco'nition of finance inco1e shall (e (ased on a *attern reflectin' a constant *eriodic rate of
ret&rn on the lessor:s net invest1ent in the finance lease,
A lessor ai1s to allocate finance inco1e over the lease ter1 on a s+ste1atic and rational (asis, This inco1e
allocation is (ased on a *attern reflectin' a constant *eriodic ret&rn on the lessor:s net invest1ent in the
finance lease, "ease *a+1ents relatin' to the *eriod, e0cl&din' costs for services, are a**lied a'ainst the
'ross invest1ent in the lease to red&ce (oth the *rinci*al and the &nearned finance inco1e,
Esti1ated &n'&aranteed resid&al val&es &sed in co1*&tin' the lessor:s 'ross invest1ent in the lease are
revie5ed re'&larl+, If there has (een a red&ction in the esti1ated &n'&aranteed resid&al val&e, the inco1e
allocation over the lease ter1 is revised and an+ red&ction in res*ect of a1o&nts accr&ed is reco'nised
i11ediatel+,
An asset &nder a finance lease that is classified as held for sale .or incl&ded in a dis*osal 'ro&* that is
classified as held for sale/ in accordance 5ith IFR! < Non2c&rrent Assets 4eld for !ale and 7iscontin&ed
O*erations shall (e acco&nted for in accordance 5ith that IFR!,
Man&fact&rer or dealer lessors shall reco'nise sellin' *rofit or loss in the *eriod, in accordance 5ith
the *olic+ follo5ed (+ the entit+ for o&tri'ht sales, If artificiall+ lo5 rates of interest are 9&oted, sellin'
*rofit shall (e restricted to that 5hich 5o&ld a**l+ if a 1ar8et rate of interest 5ere char'ed, Costs
inc&rred (+ 1an&fact&rer or dealer lessors in connection 5ith ne'otiatin' and arran'in' a lease shall
(e reco'nised as an e0*ense 5hen the sellin' *rofit is reco'nised,
Man&fact&rers or dealers often offer to c&sto1ers the choice of either (&+in' or leasin' an asset, A finance
lease of an asset (+ a 1an&fact&rer or dealer lessor 'ives rise to t5o t+*es of inco1e-
.a/
.(/
44
*rofit or loss e9&ivalent to the *rofit or loss res&ltin' fro1 an o&tri'ht sale of the asset (ein' leased,
at nor1al sellin' *rices, reflectin' an+ a**lica(le vol&1e or trade disco&nts3 and
finance inco1e over the lease ter1,
41
41A
42
46
The sales reven&e reco'nised at the co11ence1ent of the lease ter1 (+ a 1an&fact&rer or dealer lessor is the
fair val&e of the asset, or, if lo5er, the *resent val&e of the 1ini1&1 lease *a+1ents accr&in' to the lessor,
co1*&ted at a 1ar8et rate of interest, The cost of sale reco'nised at the co11ence1ent of the lease ter1 is
the cost, or carr+in' a1o&nt if different, of the leased *ro*ert+ less the *resent val&e of the &n'&aranteed
resid&al val&e, The difference (et5een the sales reven&e and the cost of sale is the sellin' *rofit, 5hich is
reco'nised in accordance 5ith the entit+:s *olic+ for o&tri'ht sales,
Man&fact&rer or dealer lessors so1eti1es 9&ote artificiall+ lo5 rates of interest in order to attract c&sto1ers,
The &se of s&ch a rate 5o&ld res&lt in an e0cessive *ortion of the total inco1e fro1 the transaction (ein'
reco'nised at the ti1e of sale, If artificiall+ lo5 rates of interest are 9&oted, sellin' *rofit is restricted to that
5hich 5o&ld a**l+ if a 1ar8et rate of interest 5ere char'ed,
Costs inc&rred (+ a 1an&fact&rer or dealer lessor in connection 5ith ne'otiatin' and arran'in' a finance
lease are reco'nised as an e0*ense at the co11ence1ent of the lease ter1 (eca&se the+ are 1ainl+ related to
earnin' the 1an&fact&rer:s or dealer:s sellin' *rofit,
"essors shall, in addition to 1eetin' the re9&ire1ents in IFR! %, disclose the follo5in' for finance
leases-
4<
4=
4%
?
EC staff consolidated version as of 24 March 2010,
FOR INFORMATION PRPO!E! ON"#
.a/
EN $ E IA! 1%
a reconciliation (et5een the 'ross invest1ent in the lease at the end of the re*ortin' *eriod,
and the *resent val&e of 1ini1&1 lease *a+1ents receiva(le at the end of the re*ortin'
*eriod, In addition, an entit+ shall disclose the 'ross invest1ent in the lease and the *resent
val&e of 1ini1&1 lease *a+1ents receiva(le at the end of the re*ortin' *eriod, for each of the
follo5in' *eriods-
.i/
.ii/
.iii/
not later than one +ear3
later than one +ear and not later than five +ears3
later than five +ears,
.(/
.c/
.d/
.e/
.f/
4?
&nearned finance inco1e,
the &n'&aranteed resid&al val&es accr&in' to the (enefit of the lessor,
the acc&1&lated allo5ance for &ncollecti(le 1ini1&1 lease *a+1ents receiva(le,
contin'ent rents reco'nised as inco1e in the *eriod,
a 'eneral descri*tion of the lessor:s 1aterial leasin' arran'e1ents,
As an indicator of 'ro5th it is often &sef&l also to disclose the 'ross invest1ent less &nearned inco1e in ne5
(&siness added d&rin' the *eriod, after ded&ctin' the relevant a1o&nts for cancelled leases,
O*eratin' leases
4@
<0
"essors shall *resent assets s&()ect to o*eratin' leases in their state1ents of financial *osition
accordin' to the nat&re of the asset,
"ease inco1e fro1 o*eratin' leases shall (e reco'nised in inco1e on a strai'ht2line (asis over the lease
ter1, &nless another s+ste1atic (asis is 1ore re*resentative of the ti1e *attern in 5hich &se (enefit
derived fro1 the leased asset is di1inished,B
Costs, incl&din' de*reciation, inc&rred in earnin' the lease inco1e are reco'nised as an e0*ense, "ease
inco1e .e0cl&din' recei*ts for services *rovided s&ch as ins&rance and 1aintenance/ is reco'nised on a
strai'ht2line (asis over the lease ter1 even if the recei*ts are not on s&ch a (asis, &nless another s+ste1atic
(asis is 1ore re*resentative of the ti1e *attern in 5hich &se (enefit derived fro1 the leased asset is
di1inished,
Initial direct costs inc&rred (+ lessors in ne'otiatin' and arran'in' an o*eratin' lease shall (e added to
the carr+in' a1o&nt of the leased asset and reco'nised as an e0*ense over the lease ter1 on the sa1e
(asis as the lease inco1e,
The de*reciation *olic+ for de*recia(le leased assets shall (e consistent 5ith the lessor:s nor1al
de*reciation *olic+ for si1ilar assets, and de*reciation shall (e calc&lated in accordance 5ith IA! 1=
and IA! 6?,
To deter1ine 5hether a leased asset has (eco1e i1*aired, an entit+ a**lies IA! 6=,
A 1an&fact&rer or dealer lessor does not reco'nise an+ sellin' *rofit on enterin' into an o*eratin' lease
(eca&se it is not the e9&ivalent of a sale,
"essors shall, in addition to 1eetin' the re9&ire1ents of IFR! %, disclose the follo5in' for o*eratin'
leases-
.a/ the f&t&re 1ini1&1 lease *a+1ents &nder non2cancella(le o*eratin' leases in the a''re'ate
and for each of the follo5in' *eriods-
.i/ not later than one +ear3
<1
<2
<6
<4
<<
<=
B
!ee also !IC21< O*eratin' "easesEIncentives,
@
EC staff consolidated version as of 24 March 2010,
FOR INFORMATION PRPO!E! ON"#
.ii/
.iii/
.(/
.c/
<%
later than one +ear and not later than five +ears3
later than five +ears,
EN $ E IA! 1%
total contin'ent rents reco'nised as inco1e in the *eriod,
a 'eneral descri*tion of the lessor:s leasin' arran'e1ents,
In addition, the disclos&re re9&ire1ents in IA! 1=, IA! 6=, IA! 6?, IA! 40 and IA! 41 a**l+ to lessors for
assets *rovided &nder o*eratin' leases,
!ale and lease(ac8 transactions
<? A sale and lease(ac8 transaction involves the sale of an asset and the leasin' (ac8 of the sa1e asset, The
lease *a+1ent and the sale *rice are &s&all+ interde*endent (eca&se the+ are ne'otiated as a *ac8a'e, The
acco&ntin' treat1ent of a sale and lease(ac8 transaction de*ends &*on the t+*e of lease involved,
If a sale and lease(ac8 transaction res&lts in a finance lease, an+ e0cess of sales *roceeds over the
carr+in' a1o&nt shall not (e i11ediatel+ reco'nised as inco1e (+ a seller2lessee, Instead, it shall (e
deferred and a1ortised over the lease ter1,
If the lease(ac8 is a finance lease, the transaction is a 1eans 5here(+ the lessor *rovides finance to the
lessee, 5ith the asset as sec&rit+, For this reason it is not a**ro*riate to re'ard an e0cess of sales *roceeds
over the carr+in' a1o&nt as inco1e, !&ch e0cess is deferred and a1ortised over the lease ter1,
If a sale and lease(ac8 transaction res&lts in an o*eratin' lease, and it is clear that the transaction is
esta(lished at fair val&e, an+ *rofit or loss shall (e reco'nised i11ediatel+, If the sale *rice is (elo5
fair val&e, an+ *rofit or loss shall (e reco'nised i11ediatel+ e0ce*t that, if the loss is co1*ensated for
(+ f&t&re lease *a+1ents at (elo5 1ar8et *rice, it shall (e deferred and a1ortised in *ro*ortion to the
lease *a+1ents over the *eriod for 5hich the asset is e0*ected to (e &sed, If the sale *rice is a(ove fair
val&e, the e0cess over fair val&e shall (e deferred and a1ortised over the *eriod for 5hich the asset is
e0*ected to (e &sed,
If the lease(ac8 is an o*eratin' lease, and the lease *a+1ents and the sale *rice are at fair val&e, there has in
effect (een a nor1al sale transaction and an+ *rofit or loss is reco'nised i11ediatel+,
For o*eratin' leases, if the fair val&e at the ti1e of a sale and lease(ac8 transaction is less than the
carr+in' a1o&nt of the asset, a loss e9&al to the a1o&nt of the difference (et5een the carr+in' a1o&nt
and fair val&e shall (e reco'nised i11ediatel+,
For finance leases, no s&ch ad)&st1ent is necessar+ &nless there has (een an i1*air1ent in val&e, in 5hich
case the carr+in' a1o&nt is red&ced to recovera(le a1o&nt in accordance 5ith IA! 6=,
7isclos&re re9&ire1ents for lessees and lessors a**l+ e9&all+ to sale and lease(ac8 transactions, The re9&ired
descri*tion of 1aterial leasin' arran'e1ents leads to disclos&re of &ni9&e or &n&s&al *rovisions of the
a'ree1ent or ter1s of the sale and lease(ac8 transactions,
!ale and lease(ac8 transactions 1a+ tri''er the se*arate disclos&re criteria in IA! 1 Presentation of
Financial !tate1ents,
<@
=0
=1
=2
=6
=4
=<
==
Transitional *rovisions
=% !&()ect to *ara'ra*h =?, retros*ective a**lication of this !tandard is enco&ra'ed (&t not re9&ired, If
the !tandard is not a**lied retros*ectivel+, the (alance of an+ *re2e0istin' finance lease is dee1ed to
have (een *ro*erl+ deter1ined (+ the lessor and shall (e acco&nted for thereafter in accordance 5ith
the *rovisions of this !tandard,
An entit+ that has *revio&sl+ a**lied IA! 1% .revised 1@@%/ shall a**l+ the a1end1ents 1ade (+ this
!tandard retros*ectivel+ for all leases or, if IA! 1% .revised 1@@%/ 5as not a**lied retros*ectivel+, for
all leases entered into since it first a**lied that !tandard,
=?
10
EC staff consolidated version as of 24 March 2010,
FOR INFORMATION PRPO!E! ON"#
=?A
EN $ E IA! 1%
An entit+ shall reassess the classification of land ele1ents of &ne0*ired leases at the date it ado*ts the
a1end1ents referred to in *ara'ra*h =@A on the (asis of infor1ation e0istin' at the ince*tion of
those leases, It shall reco'nise a lease ne5l+ classified as a finance lease retros*ectivel+ in accordance
5ith IA! ? Acco&ntin' Policies, Chan'es in Acco&ntin' Esti1ates and Errors, 4o5ever, if an entit+
does not have the infor1ation necessar+ to a**l+ the a1end1ents retros*ectivel+, it shall-
.a/
.(/
a**l+ the a1end1ents to those leases on the (asis of the facts and circ&1stances e0istin' on
the date it ado*ts the a1end1ents3 and
reco'nise the asset and lia(ilit+ related to a land lease ne5l+ classified as a finance lease at
their fair val&es on that date3 an+ difference (et5een those fair val&es is reco'nised in
retained earnin's,
Effective date
=@ An entit+ shall a**l+ this !tandard for ann&al *eriods (e'innin' on or after 1 Fan&ar+ 200<, Earlier
a**lication is enco&ra'ed, If an entit+ a**lies this !tandard for a *eriod (e'innin' (efore 1 Fan&ar+
200<, it shall disclose that fact,
Para'ra*hs 14 and 1< 5ere deleted, and *ara'ra*hs 1<A and =?A 5ere added as *art of I1*rove1ents to
IFR!s iss&ed in A*ril 200@, An entit+ shall a**l+ those a1end1ents for ann&al *eriods (e'innin' on or after
1 Fan&ar+ 2010, Earlier a**lication is *er1itted, If an entit+ a**lies the a1end1ents for an earlier *eriod it
shall disclose that fact,
=@A
Aithdra5al of IA! 1% .revised 1@@%/
%0 This !tandard s&*ersedes IA! 1% "eases .revised in 1@@%/,
11