Embedded derivatives (para. BC81)

(paragraphs 3-4)

BC81 The IASB decided to require an entity to separate from a lease any derivatives embedded in the lease (as defined in IFRS 9 Financial Instruments), and account for the derivatives applying IFRS 9. Nonetheless, IFRS 16 includes specific requirements for features of a lease such as options and residual value guarantees that may meet the definition of a derivative. The IASB noted that the lease accounting model in IFRS 16 was not developed with derivatives in mind and, thus, IFRS 16 would not provide an appropriate basis on which to account for derivatives. Accordingly, if derivatives embedded in leases were not accounted for separately, unrelated derivative contracts could be bundled with leases to avoid measuring the derivatives at fair value.