Short-term lease
IFRS 16 permits a lessee to elect the short-term lease recognition exemption by class of underlying asset. If the election applies, the lessee generally recognises lease payments as an expense on a straight-line basis or another systematic basis that better represents the benefit pattern, instead of recognising the lease liability and right-of-use asset for that lease. Reassess a lease as a new lease in specified circumstances, including relevant changes to its term.
Worked example
A lessee rents equipment for six months with no purchase option and elects the exemption for that class. For six equal monthly payments of $1,000, it recognises $1,000 expense per month, assuming straight-line recognition is appropriate.
Common mistake
Assuming the exemption is mandatory, or treating a twelve-month lease with a purchase option as a short-term lease.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |