Non-lease component
A component of a contract that provides goods or services separately from the right to use an underlying asset.
Definition
Lease contracts often include services or other elements alongside the right to use an asset, such as a service charge, insurance or maintenance. Under IFRS 16, a lessee separates non-lease components from the lease component, allocating the consideration on relative stand-alone prices, so they are left out of the lease liability. A lessee may instead elect, by class of underlying asset, not to separate them and to account for the whole as a single lease component. Amended FRS 102 contains the same election.
Why it matters
Separating non-lease components keeps services out of the lease liability. The separation requires judgement and supporting analysis, and an entity that elects not to separate for a class of asset accounts for each lease component and its associated non-lease components as one lease component, and the resulting payments are measured under the lease payment rules. The election is a policy to apply consistently by class of asset.
In AuditLease
AuditLease measures the lease on the base payment amount you enter, and has no separate field for non-lease elements or for the allocation basis today. Work out which charges transfer a good or service, allocate the consideration on relative stand-alone prices, and enter the amount allocated to the lease component, or the combined amount where you have elected, by class of asset, to combine. Do not remove an amount only because it is labelled service charge, insurance or tax.
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.