there is a lease for 5 years
lessee has the option for cancellation of the same
however lessee intention is use it for 5 years and not to cancel it before that
whether this cancelable lease will be a short term or long term
I could not find the standard, but from IndAS 17, an operating lease is short term and finance leases are for long term. Then, I checked IFRS 16 which is similar to INDAS 116, and it mentions that any lease agreement which is lesser than 12 months, and no intention to extend will not recognise an asset and it’s treatment is different. Only short term leases with an intention to extend contract period are classified as leases.
To answer your query, from the above, short term and long term lease contracts which has an option (will be exercised) to extend or not to terminate contract is recognised as a lease contract. To be more precise, cancellable lease is not a lease or long term; non cancellable leases with a mind to further extend the contract or not to terminate is a Lease. Any lease contract which has purchase option is not a short term lease, but long term lease.
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