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Hello, Chris,
Coud you please advise regarding IFRS16 .One of the requirements to recognise the lease is that it should be a long-term contract.What if the contract is for a year with automatic prolongation if parties dont express intention to terminate?In fact the company has continued leasing for years.Should such contract apply requirements of IFRS16?Hi,
This is more of a SBR issues and wouldn’t be seen in FR where the focus is on the basic application of the rules to a particular scenario.
IFRS 16 doesn’t specifically say that it needs to be a long-term contract. We need first to determine if it is a lease and then we would recognise the right-of-use asset and liability. We have the option to use an alternative treatment if it is a low-value asset or if it is a short-term lease.
If it is a yearly contract that can continue indefinitely then we would recognise the asset and liability as in substance it is not a short-term lease.
Thanks
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