Definition of Lease

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of an asset (the underlying asset) for a period of time in exchange for consideration (IFRS 16:9).

Identifying Assets

(a)An asset is typically identified by being explicitly stated in a contract.

(b) However, an asset can also be identified at the time that the asset is made available for use by the customer (IFRS 16:B13).

For example, a physically distinct portion of an asset such as a building could be considered an identifiable asset.

Right to Control the Use of an Asset

There is a right to control the use of an identified asset for a period of time when the customer has both:

(a) the right to obtain substantially all of the economic benefits from the use of the identified asset,

The customer can obtain substantially all the economic benefits from the use of an asset throughout the period of use by having exclusive use of the asset throughout the period.

A customer can obtain economic benefits directly or indirectly such as holding, using, or subleasing the asset.

(b) the right to direct the use of the identified asset (IFRS 16:B9).

A customer has the right to direct the use of an identified asset throughout the period of use if the customer has the right to direct how and for what purpose the asset is used throughout the period of use.

Next lesson – Finance Lease Model for Lessee