Differences in the definition of financial lease under IFRS and RAS

In RAS, leasing is accepted as a financial lease. In accordance with the legislation under a lease agreement, the lessor undertakes to acquire the property specified by the lessee from the seller designated by him and to provide the lessee with this property for a fee for temporary possession and use. The property leased for the duration of the lease agreement is the property of the lessor.

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incident to ownership. All other leases are classified as operating leases. Classification is made at the inception of the lease.

Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form. Situations that would normally lead to a lease being classified as a finance lease include the following:

• •    the lease transfers ownership of the asset to the lessee by the end of the lease term;

• •    the lessee has the option to purchase the asset at a price which is expected to be sufficiently lower than fair value at the date the option becomes exercisable that, at the inception of the lease, it is reasonably certain that the option will be exercised;

• •    the lease term is for the major part of the economic life of the asset, even if title is not transferred;

• •    at the inception of the lease, the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset;

• •    the lease assets are of a specialised nature such that only the lessee can use them without major modifications being made.

Another difference between RAS and IFRS is that according to IFRS a lessee always charges depreciation on a financial lease property.

From the point of view of IFRS, a contract that is accounted for as an operating lease in RAS can be measured as a financial lease. As a result, adjustments are required in the account of the lessee and the lessor.