IFRS 16 Exemptions

Example 1: A Bank has entered into a lease contract with a university to use an identified space on campus to install an ATM machine. The lease has a non-cancellable term of 11 months and 25 days and the bank has the option to extend for another 11 months and 25 days every time the lease term expires. The Bank intends to have the ATM machine on campus for the foreseeable future.

Can the above lease contract be classified as a short-term lease, if so, why?

No, the lease contract cannot be classified as a short-term lease.

• Since the lease contains an option to extend beyond the non-cancellable period, the lease cannot be classified as a short-term lease
• The bank has intention to lease the space for more than 12 months, hence a right-of-use asset and lease liability would be recognised at commencement of the lease

Example 2: An entity leases a second hand car which has a market value of $3,500. The same car, when new, would cost $10,000.

Can the above lease contract be classified as a low value asset lease under IFRS 16?

No, the lease would not qualify for a low value asset because the car would not have been low in value when initially bought.

Example 3: A multinational bank with approximately £2 billion in profits enters into a five-year contract to lease an office. The annual lease cost is £15,000. The operations carried out from the office and the lease cost are immaterial to the bank.

Can the above lease contract be classified as a low value asset lease under IFRS 16?

• The office would not qualify as a low value asset which is determined on an ‘absolute’ basis rather than the materiality of its lease costs to the lessee’s operations
• The bank would need to follow IFRS 16 principles and recognise right-of-use asset and a lease liability