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A company has entered into a 4 year lease for a machine, with lease rental of $150,000 payable annually in advance, and an optional secondary period of 3 years at rentals of 80%,60% and 40% of the annual rent in the primary period. the machine has useful life of 8 years.
IAS 17, one of the condition is
the lease term is for the major part of economic life of the asset even if title is not transferred.in the above example, does the company has lease term for the major part of economic life? if we include secondary period it has. can we consider the optional secondary period? since it is optional i dont think so.
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