Sample Disclosure – Accounting Policy On Leases Of Land And Buildings (26 August 2009)

Leases of land and buildings

 For leases of land and building, the land and buildings elements are considered separately for the purpose of lease classification and these leases are classified as operating or finance leases in the same way as leases of other assets.

The minimum lease payments including any lump-sum upfront payments made to acquire the interest in the land and building are allocated between the land and the buildings elements in proportion to the relative fair values for leasehold interest in the land element and the buildings element of the lease at the inception of the lease.

Land that has an indefinite economic life and where it does not transfer substantially all the risk and rewards incidental to ownership is treated as an operating lease.

The lump-sum upfront lease payment made on entering into or acquiring leasehold land are accounted for as prepaid lease payments and are amortised over the lease term on a straight line basis.

The buildings element is classified as a finance or operating lease. If the lease payment cannot be allocated reliably between these two elements, the entire lease is classified as a finance lease, unless it is clear that both elements are operating leases, in which case the entire lease is classified as an operating lease. The Company had previously revalued its leasehold land and has retained the unamortised revalued amount as the surrogate carrying amount of prepaid lease payments in accordance with the transitional provisions in FRS 117. Such prepaid lease payments is amortised over the lease term of 30 to 99 years.

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4 Responses to “Sample Disclosure – Accounting Policy On Leases Of Land And Buildings (26 August 2009)”

  • […] Posted by learnaccounting on August 26, 2009 If you need sample disclosure of accounting policy on leases of land and buildings please refer to: Leases Of Land And Buildings […]

  • david on January 27, 2010

    i would like to know that if the finance lease is more then 5 years and when we say:

    lease obligation within one year
    and

    lease obligation 1 and 5 years
    does this mean that it is 5*payments yearly or is it 4 years*payments years?

    thanks

  • admin on January 28, 2010

    I’m not sure what you meant by 5*payments yearly. If you think this refers to the situation that the lease has 5 payments in a year, I think this is not the case. For finance lease disclosure, obligation within one year refers to the amount repayable within 1 year i.e. 12 months from the end of financial year. obligation 1 and 5 years refers to the amount repayable after 1 year to the end of the 5th year i.e. year 2 to year 5. The balance of course refers to the amount repayable after year 5 and onwards. Hope this clear your doubt.

    Cheers!

  • Jan Dingfelder on May 28, 2010

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