We entered into a contract to lease a plot of land. We will be using the land for 20 years and then we will vacate it and return it to its legal owner.

We are aware that under IFRS 16, we need to account for the right of use asset. How shall we treat its depreciation since the land has an infinite useful life and is not depreciated at all?


Here, you do not have the land, just the right to use it – that’s the different asset. Thus yes, you do depreciate it.

Over which period?

It depends.

If you will return the land to its legal owner after 20 years, then you have the right to use the land for 20 years. Thus the depreciation period is 20 years.

So, if the ownership is not transferred, then depreciation of ROU is over shorter of the useful life and the lease term (that is – lease term in this case since useful life is infinite).

However if the rental contract transfers the ownership to the land to the lessee at the end of the lease term (not this case though), then you should not depreciate the right-of-use asset related to the land. At the end of the lease term, you would transfer it from ROU to the land (or reclassify it).