International Financial Reporting Standards

IFRS 16:
Definition of a Lease
Sarah Geisman, Technical Manager, IASB
Kathryn Donkersley, Technical Manager, IASB

IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Session overview 2

Contracts that
Definition of a lease
contain both lease
1 requirements in 3 and service
IFRS 16
components
Comparison to
2 previous
requirements in IAS
17 and IFRIC 4
Identified
Asset Right to
Control
the Use
IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Definition of a Lease: Overview 3

IFRS 16 defines a lease as:

A contract is, or contains, a lease

if the contract conveys the right
to control the use of an
identified asset for a period of
time in exchange for consideration
IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Identified Asset 4

A contract is, or contains, a lease if the contract conveys the right to

control the use of an identified asset for a period of time in
exchange for consideration

Specified EXPLICITLY eg: Specific serial number

OR
eg: Only one asset available
that is capable of being
Specified IMPLICITLY
used to meet the contract
terms

IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Identified Asset:
Substantive Substitution Rights 5

If the supplier has a substantive right to substitute the

asset, there is no identified asset and no lease

Supplier has eg: alternative assets are readily

practical ability available and customer cannot
to substitute prevent the substitution

AND
Supplier would
ie: benefits of substituting
benefit economically exceed costs
from substituting

IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Identified Asset:
Portions of Assets 6

A portion of a bigger asset is an identified asset if it is physically

distinct

eg: a capacity portion of a

eg: a floor of a building fibre optic cable
could be an identified asset is unlikely to be an
identified asset

IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Right to Control the Use 7

A contract is, or contains, a lease if the contract conveys the

right to control the use of an identified asset for a period
of time in exchange for consideration

Right to obtain
substantially all Right to
ECONOMIC DIRECT THE USE
BENEFITS and of the identified
from use of the asset asset throughout the
throughout the period period of use
of use

IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Right to Control the Use:
Economic Benefits 8

Right to obtain Consider within

substantially all scope of
ECONOMIC customers right
BENEFITS to use the asset

IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Right to Control the Use:
Direct the Use 9

Key consideration is which party directs how and for what

purpose the asset is used throughout the period of use:
Customer Customer has the right to direct the use

Customer has the right to direct the use if:

customer has the right to operate the asset
Predetermined throughout the period of use; or
customer designed the asset in a way that
predetermined how and for what purpose it
will be used
IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Right to Control:
Direct the Use 10

HOW AND FOR

WHAT PURPOSE
the asset is used

Can the customer

Consider the
change
how and for what most relevant
purpose decision making
the asset is used?
rights

IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Comparison to IAS 17/IFRIC 4 11

A contract is, or contains, a lease if the contract

IFRS 16 conveys the right to control the use of an identified
asset for a period of time in exchange for
consideration
An agreement whereby the lessor conveys to the
lessee in return for a payment or series of
IAS 17 payments the right to use an asset for an agreed
period of time
An arrangement conveys the right to use the asset
if the arrangement conveys to the purchaser
IFRIC 4 (lessee) the right to control the use of the
underlying asset

IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Contracts that Contain Both Leases and
Services 12

Lease Allocate consideration Service

Lessee: Lessor:
Allocate based on relative stand- Allocate based on
alone prices requirements in IFRS 15
Estimation is permitted
Optional practical expedient:
account for a lease component and
any associated non-lease
components as a single lease
component
IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Further information 13

Leases website
http://www.ifrs.org/Current-Projects/IASB-Projects/Leases
Leases implementation page
http://www.ifrs.org/Current-Projects/IASB-Projects/leases-
implementation/Pages/IFRS-16-Leases-Implementation.aspx

IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org