Separating lease and non-lease components
The process of dividing a contract's payments between the right-to-use element and any services or other goods included.
Definition
Where a contract contains both a lease component and one or more non-lease components (such as maintenance or property management services), IFRS 16 requires the consideration to be allocated based on relative standalone prices. FRS 102 follows a similar approach. Lessees may also elect a practical expedient to account for each lease and non-lease component as a single lease component, which is simpler but may overstate the lease liability.
Why it matters
Failing to separate components can distort lease liabilities and ROU assets. Including service charges in the lease liability is a common error that inflates the balance sheet.
In AuditLease
AuditLease lets you record the lease and non-lease components separately on each lease and document the allocation judgement in the audit trail.
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.