IFRS 16_Cars right to purchase

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GEL
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Joined: 06 Jul 2021, 10:45

IFRS 16_Cars right to purchase

Post by GEL »

Dear all good day,

I have a question.

The Company X (lessee), leases cars from the Company Y (lessor).
Some of the car contracts give the lessee the right to purchase the car.
However the last installment will be paid by lessee's employee (only in case he wants the car, the contract mentions the same thing, that you have the right to pay the last installment, it is not mandatory ).

Following the aforementioned case, should the Company X adopt IFRS 16 for the cars that they have the right to purchase?

Thank you very much for your time.
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Marek Muc
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Re: IFRS 16_Cars right to purchase

Post by Marek Muc »

as I understand, it is Company X that leases the car, so yes, IFRS 16 applies

the question is whether the purchase option should be taken into account by Company X when eg measuring lease liability, but if the contract is clear that only the employee can purchase the car, I guess Company X can ignore this option in its books. But are you sure it is the case? I would expect Company X to buy the car and then resell it to employee
JRSB
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Re: IFRS 16_Cars right to purchase

Post by JRSB »

yes, surprised the employee would be a party to the original lease
Student of IFRS.
GEL
Posts: 2
Joined: 06 Jul 2021, 10:45

Re: IFRS 16_Cars right to purchase

Post by GEL »

The contract mentions that only if you want, you are going to pay the last balloon installment.
The lessee will not pay the last balloon installment but the employee if he wats to maintain the car.

In this case should the lessee assess the car under IFRS 16 considering that at the end of the contract the Company will not acquire the car but the employee.

I am a bit confused to be honest.
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Marek Muc
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Re: IFRS 16_Cars right to purchase

Post by Marek Muc »

yes this falls under IFRS 16 irrespective of whether the entity has the purchase option or not

https://ifrscommunity.com/knowledge-bas ... g-a-lease/
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