Question

The insurer leases 15 branch premises (3–5 years) with

Q: Answer-The insurer leases 15 branch premises (3–5 years) with renewal options it is reasonably certain to e...

Lease term includes extension periods reasonably certain to be exercised variable payments based on sales are excluded from liability.

renewal options it is reasonably certain to exercise. Rent has fixed and variable (sales-linked) components. How are lease liabilities initially measured?

A Present value of fixed payments only for non-cancellable period

B Present value of fixed payments including periods covered by reasonably certain options

C Present value of fixed + expected variable payments based on forecast sales

D Undiscounted sum of fixed payments for entire legal term

E Present value of fixed payments less initial direct costs

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The insurer leases 15 branch premises (3–5 years) with

Solution