Key Points
- The exemption applies per individual underlying asset, not per contract or per asset class.
- IFRS 16.BC100 uses approximately USD 5,000 as the value threshold, assessed based on the asset's value when new regardless of the lessee's lease term or age of the asset.
- Applying the exemption removes the asset from balance sheet grossing but requires separate disclosure of the total expense under IFRS 16.53(d).
- Entities that lease large volumes of IT equipment or office furniture save significant capitalisation effort, but must still track each lease to confirm individual eligibility.
What is Low-Value Asset Exemption?
IFRS 16.5(b) gives lessees an accounting policy election to exempt leases where the underlying asset is of low value. Unlike the short-term lease exemption, which is assessed at the commencement date based on remaining term, the low-value test looks at the absolute value of the asset when new (IFRS 16.B3). A three-year-old laptop leased in its fourth year still gets measured against its value when new, not its current fair value.
The assessment is made on each individual underlying asset. IFRS 16.B5 prohibits aggregation: if an entity leases 200 identical laptops, each laptop is assessed separately rather than treating the portfolio as a single high-value lease arrangement. Assets that qualify typically include tablets, personal computers, small office furniture, and desk phones. IFRS 16.B6 explicitly excludes cars from low-value treatment.
When the exemption applies, the lessee recognises lease payments as an expense on a straight-line basis over the lease term (or another systematic basis if more representative). No right-of-use asset or lease liability appears on the balance sheet. The auditor verifies that the entity applied the exemption consistently, that the underlying assets genuinely fall below the threshold, and that IFRS 16.53(d) disclosure of the total low-value lease expense is complete.
Worked example: O'Sullivan Tech Ltd
Client: Irish SaaS company, FY2025, revenue EUR 8M, IFRS reporter. O'Sullivan leases 85 laptops for its development team. Each laptop has a value when new of EUR 1,200. The lease term is 36 months with monthly payments of EUR 38 per laptop. O'Sullivan also leases a colour production printer with a value when new of EUR 14,500 on a 48-month term.
Step 1 — Identify the underlying assets and test individually
Each laptop has a new value of EUR 1,200, well below the USD 5,000 (approximately EUR 4,600 at current exchange rates) threshold. The production printer has a new value of EUR 14,500, which exceeds the threshold.
Step 2 — Apply the exemption to qualifying assets
O'Sullivan elects the low-value exemption for all 85 laptops. Monthly expense per laptop is EUR 38, giving an annual straight-line expense of EUR 456 per unit. Total annual laptop lease expense is EUR 456 multiplied by 85, producing EUR 38,760 recognised in profit or loss.
Step 3 — Capitalise the non-qualifying asset
The production printer does not qualify for the exemption. O'Sullivan recognises a right-of-use asset and a lease liability at commencement. Using the entity's incremental borrowing rate of 5.1%, the present value of 48 monthly payments of EUR 340 gives a lease liability of approximately EUR 14,580 and a corresponding right-of-use asset of the same amount (no prepayments or restoration costs).
Step 4 — Prepare the disclosure
IFRS 16.53(d) requires O'Sullivan to disclose the total expense relating to low-value asset leases separately from short-term lease expense. The EUR 38,760 laptop lease expense goes in the notes as the low-value lease line.
Conclusion: the 85 laptops at EUR 1,200 each qualify for the low-value exemption and stay off balance sheet, while the EUR 14,500 printer is capitalised, and the treatment is defensible because the per-asset threshold test and disclosure requirements are both documented.
Why it matters in practice
- Teams frequently apply the low-value exemption at portfolio level rather than per individual asset. IFRS 16.B5 is explicit: the assessment is made on the underlying asset, not the contract. A master lease covering 200 laptops qualifies (each laptop assessed individually), but a single piece of manufacturing equipment worth EUR 45,000 does not qualify simply because monthly payments are small. ISA 540.13(a) requires the auditor to evaluate whether the entity's classification method is appropriate to the standard's requirements.
- The threshold is sometimes applied to the asset's current fair value or remaining book value rather than its value when new. IFRS 16.B3 states the assessment considers the value of the underlying asset when new, regardless of age or condition. A two-year-old server with a depreciated value of EUR 3,000 but a new value of EUR 9,000 does not qualify.
Low-value asset exemption vs. short-term lease exemption
| Dimension | Low-value asset exemption (IFRS 16.5(b)) | Short-term lease exemption (IFRS 16.5(a)) |
|---|---|---|
| Assessment basis | Value of the underlying asset when new (approximately USD 5,000) | Remaining lease term at commencement date (12 months or less) |
| Per-asset or per-lease | Per individual underlying asset regardless of contract structure | Per lease contract at commencement date |
| Reassessment | No reassessment needed; value when new does not change | Reassessed if the lease is modified or the term changes |
| Typical assets | Laptops, tablets, phones, small furniture | Seasonal warehouse space, short equipment rentals, temporary office leases |
| Cars included | No (IFRS 16.B7 excludes cars explicitly) | Yes, if the lease term is 12 months or less with no purchase option |
The practical difference surfaces in lease portfolio management. A company with 500 leased laptops benefits from the low-value exemption regardless of lease duration, while a company with a 10-month equipment lease uses the short-term exemption regardless of the equipment's value.
Related terms
Frequently asked questions
Can I apply the low-value exemption to leased cars?
No. IFRS 16.B7 states that a lease of a car does not qualify as a lease of a low-value asset because a car would not typically be of low value when new. This exclusion applies regardless of the car's size or list price. The IASB included this carve-out because car leases are often material in aggregate and excluding them from the balance sheet would undermine the standard's objectives.
Do I need to disclose low-value lease expenses separately?
Yes. IFRS 16.53(d) requires the lessee to disclose the expense relating to leases of low-value assets in a separate line from short-term lease expense and from the depreciation and interest charges on capitalised leases. Omitting this disclosure is a compliance gap even when the amounts are individually immaterial, because the standard treats it as a mandatory line item.