Lease component
The part of a contract that conveys the right to use an underlying asset — as distinct from any service or non-lease elements.
Definition
A contract may contain both lease components and non-lease components. The lease component is the element that grants the customer the right to use an identified asset. Non-lease components include services, maintenance, or other goods bundled into the contract. Under IFRS 16 and amended FRS 102, lessees must allocate the contract consideration between lease and non-lease components, unless the practical expedient to not separate is applied.
Why it matters
Correctly identifying the lease component determines the lease payments that are included in the lease liability. Mixing in non-lease amounts would overstate the liability.
In AuditLease
AuditLease records the lease component separately from any service charges or other non-lease elements, with the supporting judgement captured on the lease record.
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.