(paragraphs B55-B57)

BCZ249 When amending IAS 17 in 2003, the IASB discussed whether to allow or require an exception from the requirement to separate the land and buildings elements in cases in which the present value of the land element at the inception of the lease is small in relation to the value of the entire lease. In such cases the benefits of separating the lease into two elements and accounting for each separately may not outweigh the costs. The IASB noted that generally accepted accounting principles in Australia, Canada and the US allow or require such leases to be classified and accounted for as a single unit, with finance lease treatment being used when the relevant criteria are met. The IASB decided to allow land and buildings to be treated as a single unit when the land element is immaterial. This exception is now in paragraph B57 of IFRS 16.

BCZ250 Some stakeholders requested guidance on how small the relative value of the land element needs to be in relation to the total value of the lease. The IASB decided not to introduce a bright line such as a specific percentage threshold. The IASB decided that the normal concepts of materiality should apply.