BLM17010 - Lease accounting under IFRS 16 and FRS 102 (2024 amendments): scope and exemptions

This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.

Scope 

For entities applying IFRS 16 or FRS 102 (2024 amendments), all leases are in scope of the on-balance sheet model, except for (IFRS 16.3; FRS 102 (2024 amendments) 20.1): 

  • leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources; 

  • leases of biological assets within the scope of IAS 41 Agriculture or FRS 102 (2024 amendments) Section 34 Specialised Activities held by a lessee; 

  • Service concession arrangements within the scope of IFRIC 12 Service Concession Arrangements or FRS 102 (2024 amendments) Section 34; 

  • licences of intellectual property granted by a lessor within the scope of IFRS 15 Revenue from Contracts with Customers or FRS 102 (2024 amendments) Section 23;  (IFRS 15 and FRS 102 s23 establish the principles that an entity applies when reporting information about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer. Further detail on IFRS 15 and FRS 102 Section 23 is shown in the Business Income Manual (BIM31115)). 

  • rights held by a lessee under licensing agreements within the scope of IAS 38 Intangible Assets or FRS 102 (2024 amendments) Section 18 for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights. 

  • For FRS 102 (2024 amendments) only, leases that could lead to a loss to the lessor or the lessee as a result of non-typical contractual terms. 

Exemptions 

A lessee may elect not to apply the requirements of IFRS 16 or FRS 102 (2024 amendments) Section 20 for short-term leases and leases for which the underlying asset is of low value. (IFRS 16.5; FRS 102 (2024 amendments) 20.5) 

The election for short-term leases can be made by class of asset.  The election for low-value leases can be made on a lease-by-lease basis. (IFRS 16.8; FRS 102 (2024 amendments) 20.7) 

A short-term lease is defined as a lease that at commencement date has a lease term of 12 months or less (IFRS 16 Defined Terms, FRS 102 (2024 amendments) Glossary.  A lease that contains a purchase option is not a short-term lease. 

No specific value is included within the standards for low value assets.  IFRS 16 B8 states that examples of low-value underlying assets can include tablet and personal computers, small items of office furniture and telephones . FRS 102 (2024 amendments) 20.11 provides examples of assets that would not be considered to be of low value (including vehicles, machinery, tractors, rolling stock, aircraft, land and buildings). 

If a lessee elects to take the exemptions, the lease payments associated with those leases are to be recognised as an expense on either a straight-line basis over the lease term, or some other systematic basis.