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IAS 16, IAS 38 and IAS 17 — Purchase of a right to use land

Date recorded:

During the March 2012 Committee meeting, the Committee discussed a request from a specific jurisdiction for clarification on the purchase of a right to use land and whether it should be accounted for as a purchase of property, plant and equipment, a purchase of an intangible asset or a lease of land. In this jurisdiction, entities are not allowed to own freehold title to land but instead purchase the right to exploit or build on the land.

The Committee identified characteristics of a lease in the fact pattern submitted and observed a right to use land is generally accounted for under IAS 17. However, the Committee noted the current Leases project is silent on whether a right of use asset is a tangible or intangible asset and that based on the tentative decisions to date in that project long term leases of land would not be excluded from the scope of that project.

The Committee asked the staff to prepare a tentative agenda decision. The agenda decision notes that the Committee identified characteristics of a lease in the fact pattern and that a lease could be indefinite with extensions or renewals and therefore the existence of an indefinite period does not itself prevent the right to use from being accounted for as a lease in accordance with IAS 17. But because the fact pattern is specific to a certain jurisdiction, the Committee decided not to take the issue on to its agenda.

All Committee members agreed to the draft agenda decision not to take the issue on to the Committee’s agenda.