BLM17015 - Lease accounting under IFRS 16 and FRS 102 (2024 amendments): identifying a lease

This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.

IFRS 16.听9听and FRS 102 (2024 amendments) 20.15 define听a lease as a contract that 鈥渃onveys the right to control the use of an identified asset for a period of time in exchange for consideration.鈥� This assessment is conducted at the inception听of the contract and听is only reassessed if the terms and conditions of the contract are changed听(IFRS 16.11; FRS 102 (2024 amendments) 20.18).听

IFRS 16.B9 and FRS 102 (2024 amendments)听20.16听requires an entity to assess whether they have:听

  • the right to obtain substantially all听of听the economic benefits from use of the identified asset; and听

  • the right to direct the use of the identified asset.听

An asset is typically identified听by being explicitly specified in a contract. However, an asset can also be identified听by being implicitly specified at the time that the asset is made available for use by the customer.听(IFRS 16.B13; FRS 102 (2024 amendments) 20.19)听

In circumstances where a lease and related services are combined in one contract, the lessee will normally need to separate the contract into its lease and non-lease components and apply the lease accounting requirements to the lease element only.听(IFRS 16.12; FRS 102 (2024 amendments 20.28)听

There is a practical expedient that allows an entity to not separate the components and instead apply the leasing requirements to the entirety of the contract. This decision can be made by a class of underlying asset.听(IFRS 16.15; FRS 102听(2024 amendments 20.33)听

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