Section 18: Leases (AASB1061_04-26)

This section applies to all leases, except that leases of land and buildings accounted for as investment property by a lessor are measured in accordance with Section 14. All other requirements, including disclosures, in this section apply to the lessees and lessors of such leased property.

A lessee shall record lease payments (including costs for services such as insurance and maintenance) as an expense over the lease term on a straight-line basis, unless another systematic basis is more representative of the time pattern of the lessee’s benefit from the leased asset (in which case that other systematic basis shall be used), even if the payments are not on that basis.

The lease payments recorded as an expense over the lease term shall include any initial direct costs of the lessee incurred in negotiating and arranging a lease and the benefit of any lease incentive receivable (eg a rental holiday period), such that those costs and incentives are recorded over the term of the lease on the same basis as other lease payments.

A lessor shall present leased assets in its statement of financial position together with other assets of a similar nature and apply the recording and measurement requirements of the section of this Standard relevant to that asset.

A lessor shall record lease payments as income (excluding costs for services such as insurance and maintenance) in profit or loss over the lease term on a straight-line basis, unless another systematic basis is more representative of the time pattern of the lessee’s benefit from the leased asset (in which case that other systematic basis shall be used), even if the payments are not on that basis.

A lessor shall record as an expense costs, including depreciation, incurred in earning the lease income.

A lessor shall add to the carrying amount of the leased asset any initial direct costs it incurs in negotiating and arranging a lease and shall record such costs as an expense over the lease term on the same basis as the lease income. The time pattern of income and expense recording does not depend on the time pattern of lease payments.

A lessee or lessor shall disclose the following for leases: 

(a) a description of the underlying leased assets; 

(b) the future minimum lease payments under non-cancellable leases for each of the following periods: 

(i) not later than one year; 

(ii) later than one year and not later than five years; and 

(iii) later than five years; 

(c) a general description of the entity’s significant leasing arrangements, including, for example, information about variable lease payments, renewal or purchase options and escalation clauses, subleases (if a lessee) and restrictions imposed by lease arrangements; and 

(d) total lease expense and total lease income for the period.

An entity may be a lessee in a lease arrangement that has significantly below-market terms and conditions (eg the rental payment is nil or a nominal amount) principally to enable the lessee to further its not-for-profit objectives. The entity shall disclose, for each such material lease, information that helps users of financial statements to assess: 

(a) the lessee’s dependence on the leased asset; and 

(b) the nature and terms of the lease, including: 

(i) the lease payments; 

(ii) the lease term; and 

(iii) any amounts owing to the lessor at the reporting date. 

The entity shall consider the level of detail necessary to enable those assessments by users of financial statements. The disclosures shall be aggregated or disaggregated so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items with substantially different characteristics.

A lessor shall also make the disclosures set out in Section 14, Section 15 and Section 16 for assets provided under leases, as relevant.