International Financial Reporting Standards_guide.pdf

154 Chapter 14 Leases (IAS 17)
TABLE 14.1 Classification of a Lease—Summary
Identify lease transaction
Lease in legal form only
Lease in form & substance
Lease in substance only
SIC 27 Evaluating the substance of
transactions involving the
legal form of a lease
IFRIC 4 Determining whether
an arrangement contains
a lease
Is there a right of use of asset in
exchange for payments?
Yes
No
Apply IAS 17
Not lease
Ownership passes
to lessee
Ownership remains
with lessor
Finance lease
Operating lease
Accounting by Lessees
14.4.5 Under a finance lease the accounting treatment is as follows:
■ At commencement date, the asset and a corresponding liability for future lease payments
are recognized at the same amount, which is the lower of the fair value of the
leased asset or the present value of the minimum lease payments at that date.
■ Initial direct costs in connection with lease activities are capitalized to the asset.
■ Lease payments consist of the finance charge and the reduction of the outstanding
liability.
■ The finance charge is to be a constant periodic rate of interest on the remaining balance
of the liability for each period. It must be allocated to profit or loss for each period.
■ Depreciation and impairment of the leased asset is recognized in terms of IAS 16, IAS
38, and IAS 36. The asset must be depreciated over the shorter of its useful life or the
lease term.
14.4.6 Operating lease payments (excluding costs for services such as insurance) are recognized
as an expense in the Statement of Comprehensive Income on a straight-line basis over
the period of the lease, or a systematic basis that is representative of the time pattern of the
user’s benefit, even if the payments are not on that basis. The difference between the straight-