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Leases

Lessor accounting

3.1 Lease classifications

IFRS 16 says that a lessor must classify a lease at inception as a finance lease or
an operating lease.

A finance lease is a lease where the risks and rewards of the
underlying asset substantially transfer to the lessee.

An operating lease is a lease that is not a finance lease.

3.2 Finance lease indicators

IFRS 16 says that a lease is probably a finance lease if one of the following applies:

 Ownership of the asset transfers at the end of the lease term

 The lessee has the option to purchase the asset for less than its expected fair
value and this is reasonably certain to occur

 The lease term (including secondary periods) is for the major part of the asset’s
economic life

 At the inception of the lease, the present value of the lease payments amounts
to the fair value of the leased asset

 The leased assets are specialised

 The lessee will benefit from changes in the asset’s residual value

 The lessee can continue the lease for a secondary period in exchange for rent
payments that are much lower than market rates.

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