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Chapter
Leases:
MFRS 16
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LEARNING OBJECTIVES
At the end of the class, you will able to :

❑ Explain the definition of leases

➢ Elaborate the definition of leases
a. Obtain substantially all of the economic benefits
from the use of the asset
b. The right to direct the use of the asset

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INTRODUCTION:

a contractual agreement
between a lessor and a lessee,
that gives the LESSEE THE RIGHT
TO USE specific property,
owned by the lessor, for a
SPECIFIED PERIOD of time IN
RETURN for a series
of payments.

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LEASE TERMS:
Lessor • The owner of the leased asset

• Tenant or a person who is renting

Lessee an asset

• A period of time may also be

described in terms of the amount
Period of of use of an identified asset, e.g.
time mileage for a car or production
units for equipment (IFRS 16.10)

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DEFINITION:
MFRS 16 Para 9:
A contract that conveys
the RIGHT TO CONTROL
the use of an asset (the
underlying asset) for a
period of time in
exchange for
consideration.

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What are criteria to

determine of
leases?

RIGHT TO CONTROL
Means:

The right TO DIRECT The right to obtain

the use of identified substantially all the
asset. ECONOMIC
BENEFITS from that
use
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What is ➢ explicitly specified in a contract

➢ implicitly specified at the time it
identified is made available for use.
asset?
The supplier of the asset MUST NOT
HAVE THE RIGHT TO SUBSTITUTE the
asset for an alternative asset
throughout its period of use

The supplier of the asset HAS

THE RIGHT or the obligation to
substitute the asset WHEN A
REPAIR IS NECESSARY
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What is The customer has the right to DIRECT

HOW and FOR WHAT PURPOSE the
The right to direct the
asset is used during the whole of its
use of the asset period of use
?
The customer has the right to
operate the asset without the
supplier having the right to change
those operating instructions and

designed the asset in a way that

predetermines how and for what
purpose the asset will be used
throughout the period of use
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The right to A customer can obtain

obtain substantially all economic benefits from use of
the economic benefits an asset directly or indirectly in
from that use ? many ways, such as by using,
holding or sub-leasing the asset

Include its primary output and

by-products and other
economic benefits from using
the asset that could be
realised from a commercial
transaction with a third party.
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