ACCA Applied Skills · Financial Reporting · Leasing
Under IFRS 16, which of the following leases may a lessee, if it elects, account for by recognising the lease payments as an expense on a straight-line basis instead of recognising a right-of-use asset and lease liability?
The nine-month warehouse lease with no purchase option qualifies for the short-term lease exemption. Leases of 12 months or less without a purchase option may be expensed straight-line. The other leases are longer than 12 months, include a reasonably certain purchase option, or are not of low-value assets.
- AA nine-month lease of a warehouse with no purchase optionCorrect
- BAn 18-month lease of a delivery vehicle at $2,000 per month
- CA six-month lease of a machine that includes a purchase option the lessee is reasonably certain to exercise
- DA three-year lease of a forklift truck that cost $90,000 when new
Explanation
The short-term exemption covers leases of 12 months or less at commencement that contain no purchase option. The nine-month warehouse lease qualifies. The 18-month lease exceeds 12 months. The machine lease has a purchase option that is reasonably certain to be exercised, so it does not qualify. The forklift is not low-value and its lease term is three years.
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