Let-out clause
Its accounting effect depends on the exact enforceable terms, circumstances and applicable standard. In a lease, termination options and penalties are considered when determining the enforceable period and whether exercise is reasonably certain under IFRS 16. A clause does not by itself resolve every question about a provision or whether a constructive obligation exists.
Worked example
A lessee can terminate a five-year lease after year three without penalty. It assesses the enforceable period and whether it is reasonably certain to continue when determining the lease term.
Common mistake
Assuming any cancellation clause automatically removes all contractual obligations or that an option is included solely because management expects it may be exercised.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Supporting | September 2026–June 2027 |
| ACCA | SBR | Supporting | September 2026–June 2027 |