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Appendix C: Key terms

Term Definition

Reasonably certain In practice, reasonably certain generally connotes a
probability of 75 – 80%

Residual asset The amount the lessor expects to derive from the
underlying asset following the end of the lease term

Residual value guarantee A guarantee made to a lessor that the value of an
underlying asset returned to the lessor at the end of a
lease will be at least a specified amount

Right-of-use asset An asset that represents a lessee’s right to use an
underlying asset for the lease term

Sale and leaseback In a sale and leaseback transaction, a seller-lessee
transaction sells property that it owns to a buyer-lessor and
concurrently leases back all or a portion of the
property sold

Sales-type lease A lease in which a lessor effectively transfers control
of an underlying asset to a lessee

Short-term lease A lease that, at the commencement date, has a lease
term (as defined above) of 12 months or less and does
not include an option to purchase the underlying
asset that the lessee is reasonably certain to exercise

Sublease A transaction in which an underlying asset is re-
leased by the original lessee (or intermediate lessor)
to a third party, and the lease (or head lease) between
the original lessor and lessee remains in effect

Underlying asset An asset that is the subject of a lease for which a right
to use that asset has been conveyed to a lessee. The
underlying asset could be a physically distinct portion
of a single asset

Unguaranteed residual The present value of the amount the lessor expects to
asset derive from the underlying asset following the end of
the lease term that is not guaranteed by the lessee or
a third party

Variable lease payments Payments made by a lessee to a lessor for the right to
use an underlying asset that vary because of changes
in facts or circumstances occurring after the
commencement date, other than the passage of time

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