HK-Int 4 Leases - Determination of the Length of Lease Term in ...
HK-Int 4 Leases - Determination of the Length of Lease Term in ...
HK-Int 4 Leases - Determination of the Length of Lease Term in ...
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LEASES – DETERMINATION OF THE LENGTH OF LEASE TERM IN RESPECT OF HONG KONG LAND LEASES<br />
Scope<br />
5. This <strong>Int</strong>erpretation applies where a property is classified as be<strong>in</strong>g held under an operat<strong>in</strong>g lease<br />
<strong>in</strong> accordance with <strong>HK</strong>AS 17.<br />
(a) a property is held under a lease and accounted for <strong>in</strong> accordance with <strong>HK</strong>AS 17;<br />
(b) an <strong>in</strong>vestment property is accounted for us<strong>in</strong>g <strong>the</strong> cost model under <strong>HK</strong>AS 40; or<br />
(c) a property held for own use is carried under <strong>the</strong> cost or valuation model <strong>in</strong> <strong>HK</strong>AS 16.<br />
6. This <strong>Int</strong>erpretation also applies where <strong>the</strong> lease payment for an owner-used property cannot be<br />
allocated reliably between <strong>the</strong> land and build<strong>in</strong>g components on a fair value basis at <strong>the</strong> <strong>in</strong>ception<br />
<strong>of</strong> <strong>the</strong> lease and thus <strong>the</strong> property is classified as a f<strong>in</strong>ance lease and accounted for us<strong>in</strong>g ei<strong>the</strong>r<br />
<strong>the</strong> cost or valuation model under <strong>HK</strong>AS 16. [Deleted]<br />
Issue<br />
7. This <strong>Int</strong>erpretation addresses <strong>the</strong> issue <strong>of</strong> how <strong>the</strong> length <strong>of</strong> <strong>the</strong> lease term <strong>of</strong> a Hong Kong land<br />
lease should be determ<strong>in</strong>ed for <strong>the</strong> purpose <strong>of</strong> apply<strong>in</strong>g <strong>the</strong> amortisation (depreciation)<br />
requirements under <strong>HK</strong>AS 16 and <strong>HK</strong>AS 17, as appropriate.<br />
Conclusions<br />
8. The lease term <strong>of</strong> a Hong Kong land lease for <strong>the</strong> purpose <strong>of</strong> apply<strong>in</strong>g <strong>the</strong> amortisation<br />
(depreciation) requirements under <strong>HK</strong>AS 16 and <strong>HK</strong>AS 17, as appropriate, shall be determ<strong>in</strong>ed by<br />
reference to <strong>the</strong> legal form and status <strong>of</strong> <strong>the</strong> lease. Renewal <strong>of</strong> a lease is assumed only when <strong>the</strong><br />
lessee has a renewal option and it is reasonably certa<strong>in</strong> at <strong>the</strong> <strong>in</strong>ception <strong>of</strong> <strong>the</strong> lease that <strong>the</strong><br />
lessee will exercise <strong>the</strong> option. Options for extend<strong>in</strong>g <strong>the</strong> lease term that are not at <strong>the</strong> discretion<br />
<strong>of</strong> <strong>the</strong> lessee shall not be taken <strong>in</strong>to account by <strong>the</strong> lessee <strong>in</strong> determ<strong>in</strong><strong>in</strong>g <strong>the</strong> lease term.<br />
9. Consequently, lessees shall not assume that <strong>the</strong> lease term <strong>of</strong> a Hong Kong land lease will be<br />
extended for a fur<strong>the</strong>r 50 years, or any o<strong>the</strong>r period, while <strong>the</strong> <strong>HK</strong>SAR Government reta<strong>in</strong>s <strong>the</strong><br />
sole discretion as to whe<strong>the</strong>r to renew. Any general <strong>in</strong>tention to renew certa<strong>in</strong> types <strong>of</strong> property<br />
leases expressed by <strong>the</strong> <strong>HK</strong>SAR Government is not sufficient grounds for a lessee to <strong>in</strong>clude such<br />
extensions <strong>in</strong> <strong>the</strong> determ<strong>in</strong>ation <strong>of</strong> <strong>the</strong> lease term for amortisation (depreciation).<br />
10. Similarily, for <strong>the</strong> leases <strong>in</strong> <strong>the</strong> New Territories expir<strong>in</strong>g shortly before 30 June 2047, <strong>the</strong> legal limit<br />
<strong>in</strong> <strong>the</strong>se leases shall be assumed to be <strong>the</strong> maximum lease term.<br />
11. For those leases which extend beyond 30 June 2047 (e.g. those with an orig<strong>in</strong>al lease term <strong>of</strong> 999<br />
years), lessees shall assume that any legal rights under <strong>the</strong> leases that extend <strong>the</strong> lease term to<br />
beyond 30 June 2047 will be protected for <strong>the</strong> full duration <strong>of</strong> <strong>the</strong> lease <strong>in</strong> <strong>the</strong> absence <strong>of</strong> any<br />
<strong>in</strong>dication to <strong>the</strong> contrary.<br />
Effective date<br />
12. This <strong>Int</strong>erpretation becomes effective on 24 May 2005.<br />
Transition<br />
13. Any changes result<strong>in</strong>g from apply<strong>in</strong>g this <strong>Int</strong>erpretation shall be accounted for ei<strong>the</strong>r as a change<br />
<strong>in</strong> an account<strong>in</strong>g policy <strong>in</strong> accordance with <strong>HK</strong>AS 8 Account<strong>in</strong>g Policies, Changes <strong>in</strong> Account<strong>in</strong>g<br />
Estimates and Errors or prospectively over <strong>the</strong> rema<strong>in</strong><strong>in</strong>g lease term.<br />
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