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CFA Level I · CFA Level I Exam · Topics in Long-Term Liabilities and Equity

Under IFRS 16, a lessee that classifies a 5-year equipment lease as a right-of-use arrangement will most likely recognize in its income statement:

Under IFRS 16, the lessee records depreciation on the right-of-use asset and interest expense on the lease liability as separate items. A single straight-line lease expense is not used because IFRS 16 applies one finance-type model to nearly all leases.

  1. Aa single straight-line lease expense
  2. Bdepreciation and interest expense separatelyCorrect
  3. Crental payments as operating expense only

Explanation

IFRS 16 has a single lessee model. The lessee recognizes a right-of-use asset and lease liability, then records depreciation of the asset and interest on the liability. A single straight-line expense is the US GAAP operating lease pattern, not IFRS.

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