ACCA FR Syllabus B. Accounting For Transactions In Financial Statements - Leases - Exemptions - Notes ^{4 / 6}

So now we know that all lease contracts mean we have to show

1. A right to use Asset

2. A Liability

So remember we said there was no longer a concept of operating leases - all lease contracts mean we need to show a right to use asset and its associated liability

Well.. there are some exemptions..

Exemption 1 - Short Term Leases

These are less than 12 months contracts (unless there's an option to extend that you'll probably take or an option to purchase) 

OR a contract for more than 12 months where the lessee has the option to cancel it within 12 months and is likely to do so.

1. Treat them like operating leases 

   Just expense to the Income Statement (on a straight line / systematic basis)

2. Each class of asset must have the same treatment

3. This exemption ONLY applies to Lessees

Exemption 2: Low Value Assets

e.g. IT equipment, office furniture with a value of less than $5,000

1. Treat them like operating leases 

   Just expense to the Income Statement (on a straight line basis)

2. Choice is made on a lease by lease basis

3. This exemption ONLY applies to Lessees