CERTYNEX IFRS ACADEMY

Sarvel, a lessor, leases for 40 years a plot of land and the office building constructed on it. The economic life of the building is estimated at 45 years; the land represents a significant share of the value of the whole. The lease provides for neither transfer of ownership nor a purchase option, and the lease payments can be reliably allocated between the two elements. Which classification approach is appropriate?

Treat the whole as a single unit based on the building's economic life, then classify it as a block.

Classify each element separately, taking into account the normally indefinite economic life of land.

Classify the whole as an operating lease, since a lease that includes land can never be a finance lease.

Defer classification until the commencement date, once the fair values of both elements are known.