CERTYNEX IFRS ACADEMY

The accountant of Plieuse & Co analyses the lease of an industrial folding machine: (1) the lease term, at the commencement date, is 11 months; (2) the production machinery class is covered by the short-term lease election; (3) the contract contains an option to purchase the machine at the end, but a term of 11 months is enough to qualify it as a short-term lease; (4) the payments are therefore recognised as an expense on a straight-line basis. Which step contains the error?

Step 1: the term must be assessed at the inception date of the lease.

Step 2: the short-term lease election must be made lease by lease.

Step 3: a lease containing a purchase option is not a short-term lease.

Step 4: an exempt lease must be expensed as the payments are made.