CERTYNEX IFRS ACADEMY

Pellerin leases a construction machine for a non-cancellable period of 3 years, with an option to extend for 2 years. If Pellerin does not extend, it must pay the lessor, under a residual value guarantee, an amount such that the lessor's return is substantially the same whether or not the option is exercised. What conclusion should be reached on the lease term?

3 years, because the lessor is protected by the residual value guarantee in any case.

5 years: combining the option and the guarantee leads to presuming that the extension is reasonably certain.

3 years, the guarantee being analysed separately from the extension option.

The lease term can only be set at the end of the third year, in the light of the decision actually taken by Pellerin at that time.