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ACCA Strategic Professional · Strategic Business Reporting (International) · Leases

Delta plc, a lessee, has several leases where payments are variable based on sales turnover and not linked to an index. Under IFRS 16, how are these variable payments treated and what must be disclosed?

Variable lease payments based on turnover, rather than an index or rate, are left out of the lease liability and recognised in profit or loss in the period they arise. IFRS 16 requires the lessee to disclose the amount of that expense.

  1. AIncluded in the lease liability at an estimate of future sales and not otherwise disclosed
  2. BExcluded from the lease liability, recognised in profit or loss when incurred, with the related expense disclosedCorrect
  3. CCapitalised into the right-of-use asset when paid
  4. DRecognised as a provision at the commencement of the lease

Explanation

Variable payments not depending on an index or rate are excluded from the lease liability measurement. They are expensed in the period in which the triggering event occurs, and the lessee discloses the expense relating to such payments. Including estimated sales-based payments in the liability is wrong.

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