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“A company is about to enter into a three-year lease to rent a building. The lease cannot be cancelled and there is no certainty of renewal. The landlord retains responsibility for maintaining the premises in good repair. The directors are aware that in accordance with IAS 17 that technically the lease is classified as an operating lease.”
extract of article:
https://www.accaglobal.com/pk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/iasb-conceptual-framework-financial-reporting.htmlConceptual framework would conflict ias 17 on the basis of defination of assets and liabilities.
what would framework had done :
1- had the lease be cancellable , treat as ias 17?
2-had there been certainity of renewal?(trying to understand significance of certainity of renewal )If there were a certainty of renewal then we’d be using the asset for longer and so increasing the chance of using it for the majority of its useful life. If this is the case then we would be entering into finance lease territory.
I don’t believe that there is any significance to the non-cancellable bit as most leases currently are.
Thanks
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