Accounting 103

z
Lessee Accounting
 z
Extension Option
Refer to page 366
Notes:
1. Lease liability is remeasured using the new implicit rate

2. PV of new rentals is rediscounted for the remaining

periods from the original rentals
3. Remeasurement of lease liability is an adjustment to the
ROU asset carrying amount
 z
Variable Payments
Refer to page 369
Notes:
1. PV of new rentals is rediscounted for the period of initial
rental rate
 Lease Modifications
What is zlease modifications?
• Change to the contractual terms and conditions
• Excluding exercise of option included in the original lease
contract
Treat as separate lease if:
a. Changes increases the scope of the lease by adding the
right to use additional underlying asset
b. If rental amount increases proportionate to “a” and
equivalent to the current market rental
Refer to page 371
 Lease Modifications – extension of lease term
z
Notes:
• Adjust lease liability

• Adjust ROU asset’s carrying amount with the changes to

the lease liability
• Depreciate the adjusted carrying amount of the ROU asset
with the remaining life of the lease
 Lease Modifications – decrease in scope
z
Notes:
• If reduction in scope is at 40% or more, gain or loss should
be recognized as partial termination of lease

Decrease in CA of LL Decrease in CA of ROU Termination

> asset Gain
Decrease in CA of LL Decrease in CA of ROU Termination
< asset Loss
 Lease Modifications – change in rental
z
Notes:
• If carrying amount of lease liability decreases, the related
ROU asset is also decreased accordingly.

Decrease in CA of LL Decrease in CA of ROU Termination

> asset Gain
Decrease in CA of LL Decrease in CA of ROU Termination
< asset Loss