last updated: 1/20/2019

IFRS 16 example: lease modification – both increase and 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Hence this example starts in 2001, but is NOT outdated at all :)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
1 100,000 12/31/2001 0.9434 94,340
2 100,000 12/31/2002 0.8900 89,000
3 100,000 12/31/2003 0.8396 83,962
4 100,000 12/31/2004 0.7921 79,209
5 100,000 12/31/2005 0.7473 74,726
6 100,000 12/31/2006 0.7050 70,496
7 100,000 12/31/2007 0.6651 66,506
8 100,000 12/31/2008 0.6274 62,741
9 100,000 12/31/2009 0.5919 59,190
10 100,000 12/31/2010 0.5584 55,839

initial measurement 736,009

Liability Schedule before lease modification

year opening (1 Jan) discount payment (31 Dec) closing (31 Dec)
2001 736,009 44,161 (100,000) 680,169
2002 680,169 40,810 (100,000) 620,979
2003 620,979 37,259 (100,000) 558,238
2004 558,238 33,494 (100,000) 491,732
2005 491,732 29,504 (100,000) 421,236
2006 421,236 25,274 (100,000) 346,511
2007 346,511 20,791 (100,000) 267,301
2008 267,301 16,038 (100,000) 183,339
2009 183,339 11,000 (100,000) 94,340
2010 94,340 5,660 (100,000) (0)
263,991
Journal: Dr. Cr. 1,000,000
Right-of use Aset 736,009 736,009
 Cash - 263,991
Lease Liabilities 736,009 1,000,000

Lease modification made on 1 January 2006 7% revised discount rate

Calculation of gain/loss on the termination of the lease of 2,000 sq metres for years 9 and 10

368,004 Right-of-use asset before modification

60% Modified scope (3 out of 5 remaining years)
147,202 Decrease of right-of-use asset
220,803 Right-of-use after scope decrease

421,236 Liability before modification

267,301 Remaining liability relating to modified scope
153,935 Decrease of liability

6,733 Gain on the termination of the lease of 2,000 sq metres for years 9 and 10 -> immediate reco

Impact of revised discount rate for years 6-8

267,301.2 Liability relating to modifed scope at original discount rate

262,431.6 Liability relating to modifed scope at revised discount rate
- 4,870 Impact of revised discount rate for years 6-8

Impact of increased leased space (additional 1,500 sq metres)

131,216 Liability relating to the additional 1,500 sq metres

131,216 Right-of-use asset relating to the additional 1,500 sq metres

Liability Schedule after lease modification

year opening (1 Jan) discount payment (31 Dec) closing (31 Dec)
2006 393,647 27,555 (150,000) 271,203
2007 271,203 18,984 (150,000) 140,187
2008 140,187 9,813 (150,000) -
 950,000
715,153
(6,733)
241,580
950,000

Summarry of the accounting entries made at lease modification

1/ Gain on the termination of the lease of 2,000 sq metres for years 9 and 10 -> immediate recognition in P/L
DR CR
147,202 Right-of-use asset
153,935 Lease liability
6,733 Gain on the termination of the lease under old terms -> immediate recognition in P/L

2/ Impact of revised discount rate for years 6-8 on the lease of 2,000 sq metres
DR CR
4,870 Right-of-use asset
4,870 Lease liability

3/ Impact of increased leased space (additional 1,500 sq metres)

DR Cr
131,216 Right-of-use asset
131,216 Lease liability
rect link below:

/#link-ifrs_16_example_lease_modification_scope_increase_and_decrease_02

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

Asset Schedule before lease modification

736,009 gross book value

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

2001 736,009 (73,601) 662,408
2002 662,408 (73,601) 588,807
2003 588,807 (73,601) 515,206
2004 515,206 (73,601) 441,605
185,228 2005 441,605 (73,601) 368,004
2006 368,004 (73,601) 294,403
2007 294,403 (73,601) 220,803
2008 220,803 (73,601) 147,202
2009 147,202 (73,601) 73,601
2010 73,601 (73,601) -
(736,009)
Total payments
Depreciation expense
 Discounting expense
Total expense

d discount rate

Liability relating to modifed scope at original discount rate

payment date of payment discount factor discounted amount

1 100,000 12/31/2006 0.9434 94,340
2 100,000 12/31/2007 0.8900 89,000
3 100,000 12/31/2008 0.8396 83,962

267,301.2

s 9 and 10 -> immediate recognition in P/L

7% revised discount rate

Liability relating to modifed scope at revised discount rate

payment date of payment discount factor discounted amount

1 100,000 12/31/2006 0.9346 93,457.9
2 100,000 12/31/2007 0.8734 87,343.9
3 100,000 12/31/2008 0.8163 81,629.8

262,431.6

Liability relating to the additional 1,500 sq metres

payment date of payment discount factor discounted amount

1 50,000 12/31/2006 0.9346 46,729.0
2 50,000 12/31/2007 0.8734 43,671.9
3 50,000 12/31/2008 0.8163 40,814.9

131,215.8

Asset Schedule after lease modification

347,149 gross book value

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

2006 347,149 (115,716) 231,433
2007 231,433 (115,716) 115,716
2008 115,716 (115,716) -
 Total payments
Depreciation expense
Gain on termination
Discounting expense
Total expense

ecognition in P/L

e recognition in P/L
(368,004)