Question: Under IFRS, in computing the present value of the minimum lease payments, the lessee should:

1. use its incremental borrowing rate in all cases.
2. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher, assuming that the implicit rate is known to the lessee
3. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee.
4. use the implicit rate of the lessor, unless it is impracticable to determine the implicit rate.

The phrase "minimum lease payment" refers to the sum that the lessee must pay to the lessor when the lease agreement is signed. This sum includes the residual value, the bargain buys an option, and the penalty if the payments are not paid in full.

Minimum lease payments are crucial in establishing whether the lease should be classified as an operating lease or a capital lease. It's significant because an operating lease is viewed as a cost and isn't counted among a company's assets, but a capital lease is counted among its assets. Minimum lease payments are essential to a company's accounting standards and a critical component of corporate accounting.

So, in the above situation if the implicit rate of the lessor is known to the lessee, use its incremental borrowing rate or the implicit rate of the lessor, whichever is lower.

Option a) only incremental borrowing rate cannot be used because if there is a lower implicit rate in computing the present value of the minimum lease payments, the lessee should use an implicit rate.

Option b) the interest rate charged by the lessor in the lease agreement is the rate implied in the lease. Because this is effectively the return or margin that the lessor receives from the leasing arrangement, the lessor may be hesitant to mention the rate openly. Because the lease's rate of return isn't indicated, it's assumed.

Option d) the use of the implicit rate of the lessor unless it is impracticable to determine the implicit rate is not possible while computing the present value of the minimum lease payments.