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Hello,
In the BPP material, under recognition exemptions for leases, short-term leases are deemed to be exempt IF they do not contain a purchase option. Also it says the election is made by class of underlying asset.
But what if we have a short-term lease WITH a purchase option? How would we account for it?
Also what does it mean that the election is made by class of underlying asset? Would it means that you can apply the exemption only if you have also applied it to all other underlying assets of the same class in your books?
Regards
Sara
Hi Sara,
What you ask is more related to SBR as opposed to FR, so you’re not going to see it in this exam. Purely for interest though, if there is a purchase option that is likely to be exercised then it will be classified as a lease and we would recognise a right of use asset.
When they talk about by class of asset then think land and buildings, plant and machinery, computer equipment and the likes. So when making the election we look at applying it to each of the classes, similar to how we look at it with regards to revaluation, which is done based on class of asset.
Thanks
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