Implicit rate in the lease
The rate of interest that makes the present value of lease payments and unguaranteed residual value equal to the fair value of the underlying asset.
Definition
The implicit rate is the lessor's internal rate of return on the lease arrangement. It is rarely available to lessees because it depends on the lessor's assumptions about the residual value of the asset. When it can be readily determined, it should be used in preference to the IBR.
Why it matters
In practice, lessees almost never use the implicit rate because the lessor's residual value assumptions are not shared. The IBR is the standard fallback for most lessee accounting.
In AuditLease
AuditLease supports manual entry of the implicit rate where a lessee can determine it. In practice, users almost always enter an IBR.
Related terms
Put this into practice with AuditLease
AuditLease handles IFRS 16 and FRS 102 lease calculations, statutory note generation, journal entries, and audit evidence — so your team spends less time on spreadsheets and more time on judgements.
This definition is for general information only and is not accounting or legal advice. Definitions are based on IFRS 16, FRS 102, and associated guidance published by the IFRS Foundation and the Financial Reporting Council. Users should refer to the applicable accounting standards and their professional advisers for judgement-specific matters.