Where The Application of IAS 17 Is Out of Scope

Operating leases and Capital leases for under the scope of IAS 17. But all leases are not regulated by IAS 17 (Leases). There are some exception to the accounting for leases under the scope of accounting standard 17. Para 2 of of the standards excludes the following types of leases from the scope of the accounting standard:

• lease agreements to explore for minerals or use of oil, natural gas, minerals and similar other non-regenerative resources

• licensing agreements for such items as video recordings, music, plays, motion pictures, manuscripts, patents and copyrights.

No explanation is given for the exclusion of resource exploitation rights and licensing agreements, which means that the standard applies only to leases for assets with physical substance.

Unfortunately, para 3 mentioned that the standard applies to agreements that transfer the right to use assets. An agreement allowing a licensee to use a patented process provides future economic benefits to that licensee and meets the Conceptual Framework’ s definition of an asset in just the same way as a motor vehicle lease.

The exclusion of these agreements from the scope of the standard is difficult to justify. Presumably, the expectation is that accounting standards on extractive industries, self-generating and renewable assets and intangibles will deal with leases of this type.

Additionally, para 2 of IAS 17 prescribes that the standard must not be applied as the basis of measurement for leased investment properties or leased biological assets, because the measurement rules for such assets are contained in IAS 40 Investment Property and IAS 41 Agriculture respectively.

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