Upon subsequent measurement, if the ownership of the asset transfers to the lessee at the end of the lease term, the right-of-use asset is depreciated over which period?

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Study for the AAT Level 4 Drafting and Interpreting Financial Statements exam. Utilize flashcards and multiple choice questions with detailed explanations and hints. Prepare to ace your exam!

Multiple Choice

Upon subsequent measurement, if the ownership of the asset transfers to the lessee at the end of the lease term, the right-of-use asset is depreciated over which period?

Explanation:
Under IFRS 16, the depreciation of the right-of-use asset depends on whether ownership transfers to the lessee. If ownership transfers at the end of the lease term (or is virtually certain to be obtained), the asset is depreciated over its useful life, not just the lease term. Since ownership transfers to the lessee in this scenario, depreciation is over the asset’s useful life (the period the asset is expected to be used). If ownership didn’t transfer, depreciation would typically be over the shorter of the lease term and the asset’s useful life.

Under IFRS 16, the depreciation of the right-of-use asset depends on whether ownership transfers to the lessee. If ownership transfers at the end of the lease term (or is virtually certain to be obtained), the asset is depreciated over its useful life, not just the lease term. Since ownership transfers to the lessee in this scenario, depreciation is over the asset’s useful life (the period the asset is expected to be used). If ownership didn’t transfer, depreciation would typically be over the shorter of the lease term and the asset’s useful life.

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