last updated: 1/20/2019

IFRS 16 example: lease modification – decrease in scope

Below are calculations accompanying the example available on IFRScommunity.com under direct link below:

https://ifrscommunity.com/knowledge-base/ifrs-16-recognition-and-measurement-of-leases/#link-ifrs_16_example_lease

On IFRScommunity.com, years are written as 20X1, 20X2 etc., but this changes to 2001, 2002 etc. whenever a spreadsheet
Hence this example starts in 2001, but is NOT outdated at all :)

6% discount rate

1/1/2001 commencement date

payment date of payment discount factor discounted amount
1 50,000 12/31/2001 0.9434 47,170
2 50,000 12/31/2002 0.8900 44,500
3 50,000 12/31/2003 0.8396 41,981
4 50,000 12/31/2004 0.7921 39,605
5 50,000 12/31/2005 0.7473 37,363
6 50,000 12/31/2006 0.7050 35,248
7 50,000 12/31/2007 0.6651 33,253
8 50,000 12/31/2008 0.6274 31,371
9 50,000 12/31/2009 0.5919 29,595
10 50,000 12/31/2010 0.5584 27,920

initial measurement 368,004

Liability Schedule before lease modification

year opening (1 Jan) discount payment (31 Dec) closing (31 Dec)
2001 368,004 22,080 (50,000) 340,085
2002 340,085 20,405 (50,000) 310,490
2003 310,490 18,629 (50,000) 279,119
2004 279,119 16,747 (50,000) 245,866
2005 245,866 14,752 (50,000) 210,618
2006 210,618 12,637 (50,000) 173,255
2007 173,255 10,395 (50,000) 133,651
2008 133,651 8,019 (50,000) 91,670
2009 91,670 5,500 (50,000) 47,170
2010 47,170 2,830 (50,000) (0)
131,996
Journal: Dr. Cr. 500,000
Right-of use Aset 368,004 368,004
 Cash - 131,996
Lease Liabilities 368,004 500,000

Lease modification made on 1 January 2006 5% revised discount rate

Calculation of gain/loss on the termination of the lease under old terms

184,002 Right-of-use asset before modification

50% Modified scope (2,500 sq m out of original 5,000 sq m)
92,001 Decrease of right-of-use asset
92,001 Right-of-use after scope decrease

210,618 Liability before modification

50% Modifed scope (2,500 sq m out of original 5,000 sq m)
105,309 Decrease of liability
105,309 Liability after scope decrease

13,308 Gain on the termination of the lease under old terms -> immediate recognition in P/L

Calculation of the new lease liability at the date of modification

year payment date of payment discount factor discounted amount

1 2006 30,000 12/31/2006 0.9524 28,571
2 2007 30,000 12/31/2007 0.9070 27,211
3 2008 30,000 12/31/2008 0.8638 25,915
4 2009 30,000 12/31/2009 0.8227 24,681
5 2010 30,000 12/31/2010 0.7835 23,506

129,884

Liability Schedule after lease modification

year opening (1 Jan) discount payment (31 Dec) closing (31 Dec)
2006 129,884 6,494 (30,000) 106,379
2007 106,379 5,319 (30,000) 81,697
2008 81,697 4,085 (30,000) 55,782
2009 55,782 2,789 (30,000) 28,571
2010 28,571 1,429 (30,000) -
20,116

400,000
300,578
(13,308)
112,730
400,000
Accounting entries at the lease modification date (1 January 2006)

DR CR
92,001 Right-of-use asset
105,309 Lease liability
13,308 Gain on the termination of the lease under old terms -> immediate recognition in P/L
24,575 Lease liability
24,575 Right-of-use asset
rect link below:

/#link-ifrs_16_example_lease_modification_scope_decrease_01

etc. whenever a spreadsheet formula needs a valid format date as an input.

Asset Schedule before lease modification

368,004 gross book value

year NBV opening (1 Jan) depreciation NBV closing (31 Dec)

2001 368,004 (36,800) 331,204
2002 331,204 (36,800) 294,403
2003 294,403 (36,800) 257,603
2004 257,603 (36,800) 220,803
92,614 2005 220,803 (36,800) 184,002
2006 184,002 (36,800) 147,202
2007 147,202 (36,800) 110,401
2008 110,401 (36,800) 73,601
2009 73,601 (36,800) 36,800
2010 36,800 (36,800) -
(368,004)
Total payments
Depreciation expense
 Discounting expense
Total expense

d discount rate

Journal:
Lease liabilities 105,309
Right-of use asset 92,001
ate recognition in P/L Gain 13,308

nted amount

Asset Schedule before lease modification

116,576 revised gross book value

year NBV opening (1 Jan) depreciation NBV closing (31 Dec)

2006 116,576 (23,315) 93,261
2007 93,261 (23,315) 69,946
2008 69,946 (23,315) 46,631
2009 46,631 (23,315) 23,315
2010 23,315 (23,315) -
(116,576)

Total payments
Depreciation expense
Gain on termination
Discounting expense
Total expense
e recognition in P/L
(184,002)