(paragraphs 23-46B)

Lease term: options to extend or terminate a lease (paragraphs 18-19)

BC152 Leases often grant the lessee a right to extend a lease beyond the non-cancellable period, or to terminate a lease before the end of the lease period. Depending on the terms and conditions of the option, a three-year lease with an option to extend for two years could be economically similar to a three-year non-cancellable lease or a five-year non-cancellable lease. However, a lease with options would never be exactly the same as a lease without any options.

BC153 There are a number of different ways that an entity could reflect duration-related options that exist in leases:

(a) a components approach, in which options in a lease are recognised and measured as separate components of the lease. The IASB did not adopt a components approach because it would have created a complex lease accounting model, would have been difficult to apply because options may be difficult to measure, and would have ignored the interrelationship between the term of a lease and the exercise of options.