Understanding and Automating Bargain of Purchase Options (BOPO) in Lease Accounting: A Strategic Guide with Real-World Application

Introduction: Why Bargain of Purchase Options (BOPOs) Matter in Modern Lease Accounting

The implementation of IFRS 16 and ASC 842 has transformed lease accounting from a footnote to a central component of financial reporting. One of the most impactful and often misunderstood lease clauses, is the Bargain of Purchase Option (BOPO).

A BOPO allows a lessee to purchase the leased asset at a price significantly below its likely fair market value at the end of the lease term. This seemingly simple clause has profound accounting implications. If a BOPO is reasonably certain to be exercised, the lease must be classified as a finance lease, requiring the asset and liability to be recognized on the balance sheet.

This article dives deep into:

• What makes a BOPO "bargain"

• Why BOPO prices are set below market value

• Full accounting journal treatment in a real-world case study

• How Leasee by PT. Sazanka Henig Solusi (https://www.leasee.id/) automates BOPO detection, assessment, and compliance

By the end, you’ll understand not just what a BOPO is, but why it matters, and how smart automation can turn compliance complexity into operational advantage.

What Is a Bargain of Purchase Option (BOPO)? Why the Price Is Below Market Value

A Bargain of Purchase Option (BOPO) is a contractual right that gives the lessee the option to purchase the leased asset at a price considered significantly lower than its expected fair market value (FMV) at the end of the lease term.

a. Key Characteristics of a BOPO:

Not a "right of first refusal", it’s a true purchase option.
The exercise price must be "bargain-priced"—typically defined as ≤ 10–25% of the expected FMV.
The lessee is not obligated to buy—it’s optional, but the likelihood of exercise determines classification.

b. Why Is the BOPO Price Set Below Market Value?

There are strong strategic and economic reasons behind setting a BOPO price below market value:

Incentivizing Long-Term Commitment Lessors (owners) use BOPOs to attract and retain stable lessees. A 15% purchase option may encourage a company to commit to a 5-year lease with no renewal uncertainty.
Aligning Interests If the lessee expects to need the asset long-term, they’re more likely to purchase it at a discount. This benefits the lessor by securing a buyer and avoiding resale risks.
Risk Transfer to Lessee The lessor passes the risk of asset depreciation and market fluctuations to the lessee. If the asset's value drops, the lessee still pays a fixed bargain price, this protects the lessor.
Market Benchmarking the BOPO price is often set at a discounted residual value. For example:
1. Expected FMV at end of lease: Rp 1.000.000.000,00
2. BOPO price: Rp 100.000.000,00 (10% of FMV) → This represents a 90% discount and clearly signals intent to purchase.

Regulatory Note: Under IFRS 16, if the cumulative probability of BOPO exercise approaches 90% or higher, it is deemed "reasonably certain", a critical threshold for lease classification.

Case Study: Manufacturing Equipment Lease with BOPO – A Deep Dive into Journal Entries

Company: PT Super Teknologi, a mid-sized manufacturer in Surabaya, Indonesia Leased Asset: Computer numerical control (CNC) machineries centre (valued at IDR 5 billion) Lease Term: 5 years (60 months) BOPO Clause: Option to purchase at IDR 500 million at the end of the lease Current Expected FMV at End of Lease: IDR 4.5 billion BOPO Discount: around 11.1% of expected FMV, that is significantly below market value.

Objective: To accurately classify the lease and record all related accounting entries under IFRS 16.

Step 1: Determine Lease Classification – Is the BOPO Reasonably Certain?

The finance team assesses:

Asset is critical to operations; no alternative available
Replacement cost: IDR 6 billion (new)
Future demand for CNC machines: growing
Historical precedent: 3 of 4 similar leases resulted in BOPO exercise
BOPO price (IDR 500 million) is only 11.1% of expected FMV, which means strong financial incentive.

Conclusion: The BOPO is reasonably certain to be exercised. These means that the lease must be classified as a finance lease under IFRS 16.

Step 2: Calculate Lease Liability and Right-of-Use (ROU) Asset

The contents of the lease contract:

Monthly lease payments: IDR 100 million
Discount rate (implicit in lease): 8% per annum (or 0.643% monthly)
Lease term: 5 years
BOPO price: IDR 500 million (paid at end of lease)

Below is the highlight of inputed contract details to LEASEE, along with its journal and payment schedule from month 0 until month 60:

PV of Lease Payments (Annuity): IDR 5,174,552,208.05

PV of BOPO Payment (Discounted to Present): IDR 340,291,598.52

Total Lease Liability = IDR 5.175B + IDR 0.340B = IDR 5,514,843,806.57

Right-of-Use (ROU) Asset = IDR 5,514,843,806.57 (initial measurement)

Step 3: Accounting Journal Entries

Below are the key journal entries for the beginning the lease (Year 0), produced with LEASEE:

Below are the key journal entries for the Year 1 in the lease, produced with LEASEE:

And the journal entries for the next months are adjusted based on Interest Expense for the month.

Below are the key journal entries at the end of Year 5, if the BOPO is executed:

How Leasee by PT. Sazanka Henig Solusi Automates BOPO Management and Compliance

Leasee (https://www.leasee.id/) is a next-generation lease accounting platform built for accuracy, speed, and scalability. It directly addresses the complexities of BOPO-driven lease classification and accounting.

Automated BOPO Workflow in Leasee:

1. Document Upload & Extraction Upload lease contracts (PDFs, scanned documents). Leasee uses AI to extract clauses (including BOPOs) with 98% accuracy.

2. BOPO Analysis Engine Automatically calculates:

• Discount rate vs. expected FMV

• Probability of exercise

• Impact on lease classification

3. Dynamic Classification Engine Flags leases where BOPOs are reasonably certain—auto-classifying them as finance leases.

4. Automated Journal Entry Generator Generates full IFRS 16-compliant journal entries including:

• ROU asset and liability recognition

• Monthly interest and principal allocation

• Depreciation schedules

• BOPO payment treatment at end of lease

5. Audit-Ready Reporting Export:

• Lease registers

• Balance sheet disclosures

• Journal entry logs

• Financial statement notes

6. Real-Time Alerts & Governance Notify users if BOPO terms change, FMV assumptions shift, or new leases are added.

Result: 70% faster lease accounting cycle, near-zero manual errors, and audit confidence.

Conclusion: From BOPO Complexity to Strategic Advantage

A Bargain of Purchase Option (BOPO) is far more than a contractual clause, it’s a strategic lever that can reshape your financial statements, influence long-term planning, and affect compliance.

When BOPO prices are set well below market value, they signal strong intent to acquire the asset, triggering finance lease classification under IFRS 16 and PSAK 73. This requires accurate journal entries for ROU assets, lease liabilities, interest, and depreciation, tasks that are error-prone when done manually.

With Leasee by PT. Sazanka Henig Solusi, companies can:

• Automatically detect and assess BOPOs

• Classify leases with confidence

• Generate accurate, audit-ready financial statements

• Free up finance teams to focus on strategy, not spreadsheets

Transform your lease accounting from a burden into a competitive advantage.

✅ Learn more: https://www.leasee.id/

For more information and consultation, contact our expert:

Hananto Pandu SE., S.Kom., Ak., CA., CPA., ASEAN CPA. - 0896 3626 1684

‍

Best Regards,

Yohannes Ekaputra Sananto SE. MSc.