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Question 3 The practical guide provided by AASB 16 Leases for factors influencing the lease...

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Accounting

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Question 3 The practical guide provided by AASB 16 Leases for factors influencing the lease term is extracted below: B37 At the commencement date, an entity assesses whether the lessee is reasonably certain to exercise an option to extend the lease or to purchase the underlying asset, or not to exercise an option to terminate the lease. The entity considers all relevant facts and circumstances that create an economic incentive for the lessee to exercise, or not to exercise, the option, including any expected changes in facts and circumstances from the commencement date until the exercise date of the option (p.28). Assume a lessee has the right to terminate a lease of a warehouse based in Bendigo (a regional town in Australia) after four years with an 8-year stated non-cancellable period if it decides to cease operations in the country where the store is located. Required: Determine the lease term in the above scenario. Justify your decision

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