Revenue – ifrs 15 handbook

Determining the contract term when a contract contains lease 
and non-lease components
IFRS 15.7
When a contract contains lease and non-lease components, under the leases 
standard a lessor allocates the consideration in the contract applying Step 4 of 
the revenue standard (see 
Chapter 4
). A question may arise over whether to 
allocate the consideration based on the lease term as determined under the 
leases standard (i.e. including optional renewal periods over which the lessee 
is reasonably certain to extend) or based on the contract term as determined 
under the revenue standard (i.e. only including periods during which the parties 
have presently enforceable rights and obligations (see 
Section 1.2
)). In these 
cases, it appears that an entity should allocate the consideration to each 
component based on the lease term determined under the leases standard. 
We believe that an entity should also consider whether any renewal options for 
the non-lease component give rise to a material right (see 
Section 10.4
).
 
Additional application examples
Example 5 – Telco: Partially in-scope transaction
IFRS 15.7(a), 16.17
Telco T enters into a contract that includes a promise to provide telecom 
equipment and services to Customer C. T first applies the leasing standard to 
assess whether the arrangement contains a lease.

---

© 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
170 | Revenue – IFRS 15 handbook
If T concludes that the use of the equipment represents a lease, then the 
equipment will be accounted for under the leasing standard. Because the 
leasing standard contains guidance on how to identify a lease component and 
allocate the transaction price between lease and non-lease components, T first 
applies that guidance. 
If T concludes that the equipment is not leased, then the entire contract will be 
accounted for under the revenue standard. In applying the revenue standard, T 
would follow all of the relevant revenue guidance, including the requirement to 
determine whether the equipment is distinct from the service (see 
Chapter 2
).