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.