A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for the period of time in exchange for consideration. Which condition best describes this?

A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for the period of time in exchange for consideration. Which condition best describes this?

• A. It must transfer ownership at the end of the term
• B. It conveys the right to control the use of an identified asset for the period of time in exchange for consideration
• C. It must be a contract for sale of the asset
• D. It must be a fixed-term contract with annual payments

Answer: (B)

The main idea is the IFRS 16 definition of a lease: a contract is a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. This means the asset must be identified, the lessee must have the right to direct how the asset is used and to obtain substantially all the economic benefits from its use (and the lessor cannot substitute in a way that would undermine this), and the arrangement runs for a defined period in return for payment. Ownership transfer at the end isn’t required, and the contract doesn’t have to be a sale or a fixed-term payment structure alone to be a lease. So the choice that matches the idea of granting the right to control the use of an identified asset for a period in exchange for consideration is the correct description.

The main idea is the IFRS 16 definition of a lease: a contract is a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. This means the asset must be identified, the lessee must have the right to direct how the asset is used and to obtain substantially all the economic benefits from its use (and the lessor cannot substitute in a way that would undermine this), and the arrangement runs for a defined period in return for payment. Ownership transfer at the end isn’t required, and the contract doesn’t have to be a sale or a fixed-term payment structure alone to be a lease. So the choice that matches the idea of granting the right to control the use of an identified asset for a period in exchange for consideration is the correct description.