Purchase Options
Related terms
Category
IFRS 16
A purchase option is a provision in a lease contract that gives the lessee the right to purchase the underlying asset at the end of the lease term (or during). If the lessee is reasonably certain to exercise the purchase option, the lease is classified as a finance lease under ASC 842.
Why it matters
Purchase options are one of the five ASC 842 classification criteria. A bargain purchase option. priced significantly below expected fair value. almost always triggers finance lease classification. The option price is included in lease payments for present value calculations when exercise is reasonably certain.
How Arvexi handles this
Arvexi extracts purchase option terms from documents and evaluates their impact on classification. When a purchase option is reasonably certain, the platform includes the option price in lease liability measurement and applies finance lease classification.