Application of lease in Buisness

[Yakub02]

IFRS 16 applies to all leases except for:

 leases to explore for or use minerals, oil etc.;  leases of biological assets (IAS 41);

 service concession arrangements (IFRIC 12);

 licences of intellectual property granted by a lessor (within the scope of IFRS 15); and

 rights held under licensing agreements within the scope of IAS 38 e.g. patents and copyrights (a lessee can, but is not required to, apply IFRS 16 to leases of other intangible assets). IFRS 16 specifies the accounting for an individual lease.

However, as a practical expedient the rules can be applied to a portfolio of leases with similar characteristics as long as there is a reasonable expectation that the effects on the financial statements would not differ materially from applying the rules to the individual leases of the portfolio.

A lease might cover the use of several assets. Such a lease might be split into separate lease components. The right to use an asset is a separate lease component if both:

 the lessee can benefit from use of the underlying asset either on its own or together with other resources that are readily available to it; and  the asset is neither highly dependent on, nor highly interrelated with, the other underlying assets in the contract.

 

[Yakub02]

Right to control. The right to control the use of an identified asset means that the customer has both the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset.

The right to obtain substantially all of the economic benefits from use of an asset must be assessed within the defined scope of a customer’s right to use the asset.

For example, if a contract for the use of an airplane prohibits the use of the pane for transporting passengers the customer shall consider only the economic benefits from use of the airplane for transporting cargo.

The restriction does not affect the ability of the customer to obtain all of the economic benefits from use of an asset

 

[Yakub02]

The right to direct the use of an identified asset throughout the period of use implies that the customer can either:

 direct how and for what purpose the asset is used throughout the period of use; or

 the relevant decisions about how and for what purpose the asset is used are predetermined and cannot be changed by the supplier.

Lease components in a contract are accounted for separately from non-lease components (unless the allowed practical expedient is used .

This involves separating payments under the contract into those that relate to the lease and those that relate to other elements. A lessee must allocate the consideration to the components of a contract on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components