Revise line lease easily

Aug 6th, 2022
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How to revise line lease

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hello Im Jordan Adelson a senior manager in PwCs national office as part of our leasing video series Im going to discuss how lessees would record one the amount of the lease liability and the right of use asset for both operating and finance leases and to the day to accounting for operating leases for a description of how a lessee would record day 2 accounting for a finance lease please refer to the lessee finance lease video in our leasing series on CFO direct comm for context day 1 accounting refers to the initial recording of the lease at commencement while day 2 refers to the accounting for the lease after it is initially recorded lets begin with an example assume the following terms of lease the lease has a term of five years with annual payments of 1.1 million dollars the first lease payment is due at least commencement date with subsequent lease payments to at the end of each year starting with year 1 a lease incentive of $100,000 was provided by the lessor the first lease

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Lease modification: A change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease (for example, adding or terminating the right to use one or more underlying assets, or extending or shortening the contractual lease term).
The straight-line concept is based on the idea that the usage of the rental arrangement is on a consistent basis over time; that is, the rented asset is used at about the same rate from month to month. To calculate straight-line rent, aggregate the total cost of all rent payments, and divide by the total contract term.
A lease modification includes adding or terminating the right to use one or more underlying assets, or extending or shortening the contractual lease term.
Straight-line basis: a property lease where the same building is leased over several periods. Another systematic basis: where the benefit is based upon the output from a machine, an approach such as the recognition of an expense based upon machine hours may be appropriate (see Appendix 2 Illustrative example 3).
a. A change in the lease term or the assessment of whether the lessee will exercise an option to purchase the underlying asset and the discount rate for the lease already reflects that the lessee has an option to extend or terminate the lease or to purchase the underlying asset.
However, to calculate straight-line rent expense, you simply add up total cash rent paid and divide by the lease term in months. For example, if rent is $50,000 total for a 5 year lease and the first year is free, then you would pay the $50,000 over 4 years at $12,500 per month.
ing to the IFRS 16, A re-assessment of the lease liability takes place if the cash flows change based on the original terms and conditions of the lease. Changes that were not part of the original terms and conditions of the lease would be considered as lease modifications.
The agreement to extend the lease is a modification because it was not contemplated in the original terms of the lease. Since the modification does not add the right to use one or more underlying assets, it does not meet the criteria in IFRS 16.44(a) to be accounted for as a separate lease.
IFRS 16 requires companies to reassess the lease term during the life of a lease contract in specific circumstances. This requirement and that to reassess other key estimates and judgements if the lease term changes, introduces financial statement volatility.
A lease modification is defined as a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease.

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