Section 20 of IFRS for SMEs - FINANCE LEASES

By: Mr. Shashank Mundle - 4th October, 2021

Share on:

Recognition of a finance lease by SMEs who have adopted IFRS:

If a lease agreement meets one or more of the indicators given below, the lease agreement should be accounted for as a finance lease:

  1. Transfer ownership of the asset to the lessee when the lease term ends

  2. Provide an option to purchase [bargain-purchase option] the asset at a price expected to be sufficiently lower than the fair value of the asset, at the date the option becomes exercisable

  3. State the lease term is for the major part of the economic life of the asset even if the title is not transferred

  4. At inception, reflect that the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset

  5. Identify the leased assets of such a specialised nature that only the lessee can use them without major modifications

  6. State the lessor's losses associated with the cancellation are borne by the lessee if the lessee can cancel the lease

  7. Identify that gains/losses from the fluctuation in residual value accrue to the lessee

  8. Allow the lessee to continue the lease for a secondary period at a rent that is substantially lower than market rent

If a lease agreement meets one or more of the above indicators, the lease agreement should be accounted for as a finance lease in terms of section 20 of IFRS for SMEs.


The Blogs published in this website are for educational purposes only. It is meant to give you a general information and a general understanding of the topics discussed therein and not to provide you or any person any professional advice thereof. By using this website you understand that there is no professional relationship between you and Mundle Venkatraman and Associates (MVA) or with any of its partners, associates or employees. Any information available on this website should not be used as a substitute for competent professional advice.

Terms of Use
Recent Blogs

44AD & 44ADA

By: Sakina Bohra

26th August, 2021

Audit of Society

By: Priyanka Jain

24th February, 2021

E-WAY Bill

By: Diptika Jadhav

1st February, 2021