How do I classify my lease(s)?

There are a number of criteria that need to be assessed while determining how your lease(s) should be classified under ASC 842. If you answer "yes" to any of the below criterion, then you have a finance lease. If you answer "no" to all of the below criterion, then you have an operating lease.

• Does the lease transfer ownership to the lessee by the end of the lease term?
• Does the lessee have on option to purchase the asset that is reasonably certain of being exercised?
• Is the lease term a major part of the remaining economic life of the asset?
• Does the present value of the sum of the lease payments equal or exceed substantially all of the fair value of the underlying asset?
• Is the underlying asset of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term?

As mentioned above, a lease can be classified as "short-term" in nature if the lease term is less than twelve months and the policy election for "short-term" leases has been elected.

For more information, refer to Occupier's Lease Accounting resource hub here.

Note, for IFRS 16 leases there are only Finance leases or short term leases. Therefore, the classification criteria above is not relevant for IFR 16.