IAS 17 Leases

Superseded by IFRS 16 Leases.

IAS 17 classifies leases into two types:

• a finance lease if the lease transfers substantially all the risks and rewards incidental to ownership; and
• an operating lease if the lease does not transfer substantially all the risks and rewards incidental to ownership.

IAS 17 prescribes lessee and lessor accounting policies for the two types of leases, as well as disclosures.

Leases in the financial statements of lessees—operating leases

Lease payments under an operating lease are recognised as an expense on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the user’s benefit.

Leases in the financial statements of lessees—finance leases

At the commencement of the lease term, lessees recognise finance leases as assets and liabilities in their statements of financial position at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease.

Any initial direct costs of the lessee are added to the amount recognised as an asset. Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred. A finance lease gives rise to depreciation expense for the recognised lease assets as well as finance expense for each accounting period.

Leases in the financial statements of lessors—operating leases

Lessors present assets subject to operating leases in their statements of financial position according to the nature of the asset. Lessors depreciate the leased assets in accordance with IAS 16 and IAS 38. Lease income from operating leases is recognised in income on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern in which the benefit derived from the leased asset is diminished.

Leases in the financial statements of lessors—finance leases

Lessors recognise assets held under a finance lease in their statements of financial position and present them as a receivable at an amount equal to the net investment in the lease. The recognition of finance income is based on a pattern reflecting a constant periodic rate of return on the lessor’s net investment in the finance lease. Manufacturer or dealer lessors recognise selling profit or loss in accordance with the policy followed by the entity for outright sales.

In April 2001 the International Accounting Standards Board (IASB) adopted IAS 17 Leases, which had originally been issued by the International Accounting Standards Committee in December 1997. IAS 17 Leases replaced IAS 17 Accounting for Leases that was issued in September 1982. 

In December 2003 the IASB issued a revised IAS 17 as part of its initial agenda of technical projects. 

Other Standards have made minor consequential amendments to IAS 17. They include Improvements to IFRSs (issued April 2009), IFRS 13 Fair Value Measurement (issued May 2011) and Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41) (issued June 2014).

This Standard was superseded by IFRS 16 Leases.