1. QUICK GUIDE TO CLASSIFICATION OF LEASE TRANSACTIONS NATIONAL TREASURY Presenter: SCOA Technical Committee| National Treasury|

2. Content 2 Definition of a lease Types of lease agreements Operating Leases Infrastructure Operating Leases Non-Infrastructure Classification of payments made in terms of a operating lease and finance lease Frequently asked questions (FAQ)

3. Definition of a lease 3 A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time

4. 4 Finance vs operating lease

5. Operating Leases Infrastructure Operating leases of infrastructure refers to leases of buildings and other fixed structures. Buildings includes, however not limited to: –Office buildings –Parking Cover and Open –Prisons and Rehabilitation Centres –Foreign Missions (Dwellings) Other Fixed Structures included, however not limited to: –Harbours –Railways –Airports –Telecommunication 5

6. Operating Leases Non-Infrastructure Operating Leases Non-infrastructure refers to leases of other machinery and equipment, transport equipment, biological assets, land and subsoil as well as software and intangible. Other Machinery and Equipment includes, however not limited to: –Computer Equipment –Furniture and Office Equipment –Construction and maintenance Equipment –Security Equipment Transport Equipment includes, however not limited to: –Buses –Motor Vehicles –Mobile Offices Land and Subsoil includes, however not limited to: –Land Developed –Land Undeveloped Software and Intangible includes, however not limited to: –Software and other Intangible assets 6

7. Classification Operating lease payments = current payments Finance lease payments = capital payments Tangible Capital Assets Building & other fixed str Intangible assets Land & subsoil assets Other mach. & equip Transport assets Lease Payments Operating lease Operating lease – Infrastructure Operating lease – Non-Infrastructure Finance lease Finance leases buil&ot fix str Finance leases soft&int ass Finance leases land&sub ass Finance leases oth mach&equip Finance leases trnsp eqp Infrastructure Operating lease Infra: Operating (CUR) Non infra:operating leases (cur) Operating lease Infra: finance leases(cap) Non infra:finance leases (cap)

8. Operating lease Non-Infrastructure Tangible Capital Assets Transport assets Other machinery & equipment Land & subsoil assets Intangible capital assets Goods and Services Operating leases-non infrastructure Operating Lease Non infra:operating leases (cur)

9. Operating lease Infrastructure Operating lease payments = current payments Operating Lease Infra:operating leases (cur) Tangible Capital Assets Residential building Non-residential building Other fixed structures Goods and Services Operating leases infrastructure

10. Finance lease Infrastructure Finance lease payments Finance Lease Infrastructure finance leases: cap Tangible Capital Assets Residential building Non-residential building Other fixed structures Pur/Const Capital Assets Finance leases build&ot fix str

11. Finance lease Non-Infrastructure Finance lease payments Finance Lease Non infra:finance leases (cap) Pur/Const Capital Assets Finance leases trans equip Finance leases oth mach Finance leases land& subsoil ass Finance leases soft&int ass Tangible Capital Assets Transport equipment Other machinery & equipment Land & subsoil assets Software & Intangible capital asset

12. FAQ R5,000 rule does not apply to leases Classification is made at the inception of the lease Leased assets are not included in the main asset register of a department (lease register is required) Additional information on leases – please refer to General Recognised Accounting Practice for National and Provincial Departments (Modified Cash Standard) chapter on leases