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Appendix C: Key terms

The following table provides definitions for key terms used within this guide.

Term Definition
Agent A person appointed by the principal who acts on the
behalf of the principal and can bind the principal into
a contract

Bargain purchase option An option in a lease agreement that allows the lessee
to purchase the leased asset, which, when considering
the circumstances in place at the commencement
date (or when classification or measurement must be
reassessed), the lessee is reasonably certain to
exercise

Call option A seller-lessee’s right to repurchase the property it
sold to a buyer-lessor

Commencement date of The date on which a lessor makes an underlying asset
the lease available for use by a lessee

Direct financing lease A lease in which a lessor does not transfer control of
the underlying asset to the lessee, and when:

the sum of the present value of the lease payments
and any residual value guaranteed by a third party
unrelated to the lessor equals or exceeds substantially
all of the fair value of the underlying asset, and
it is probable that the lessor will collect the lease
payments plus any amount necessary to satisfy a
residual value guarantee

Discount rate for the lease For a lessee, the rate implicit in the lease unless that
(rate the lessor charges the rate cannot be readily determined. In that case, the
lessee) lessee should use its incremental borrowing rate
For a lessor, the discount rate for the lease is the rate
implicit in the lease

Economic life Either the period over which an asset is expected to
be economically usable by one or more users or the
number of production or similar units expected to be
obtained from an asset by one or more users

Fair value The price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction
between market participants at the measurement
date

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