Purchase option
A contractual right for the lessee to purchase the underlying asset at the end of the lease term.
Definition
If a lessee has the right to purchase the underlying asset and is reasonably certain to exercise that right, the exercise price is included in the lease payments used to measure the lease liability, and the right-of-use asset is depreciated over the useful life of the asset rather than the lease term.
Why it matters
A purchase option that is reasonably certain to be exercised adds the exercise price to the lease payments in the liability calculation and changes the depreciation period. It does not change the lease term. This requires documented judgement.
In AuditLease
AuditLease captures purchase option terms and the user's reasonably certain judgement. You can record a supporting rationale on the lease, and the key judgements section of the statutory accounts note counts the leases with a purchase option rationale and shows one representative rationale; the Excel export also lists the lease references.
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.