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Summary Guidance: Local Currency is the currency used to pay your lease obligations (typically the currency used in the entity's particular geographical location). Local Currency is used in the following tabs:
Administration/Reporting Entity: Select the Local Currency for each Reporting Entity.
Add Lease: The Local Currency default from Administration/Reporting Entity will prefill after the Reporting Entity is selected. The user is able to select a different local currency.
My Leases: Local Currency reports can be exported by selecting the Local Currency tab.
Historical Exchange (fx) rate:
Summary Guidance: The Historical fx Rate is the exchange rate from the Local Currency to the Functional Currency at the Start Date of the lease. It is used to translate (throughout the term of the lease) the Lessee’s ROU Asset and Amortization Expense or the Lessor’s Deferred Rent and Revenue from the Local Currency to the Functional Currency.
Technical Guidance:
(IAS 21: Paragraph 16):
The essential feature of a monetary item is a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: pensions and other employee benefits to be paid in cash; provisions that are to be settled in cash; lease liabilities; and cash dividends that are recognised as a liability. Similarly, a contract to receive (or deliver) a variable number of the entity’s own equity instruments or a variable amount of assets in which the fair value to be received (or delivered) equals a fixed or determinable number of units of currency is a monetary item. Conversely, the essential feature of a non-monetary item is the absence of a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: amounts prepaid for goods and services; goodwill; intangible assets; inventories; property, plant and equipment; right-of-use assets; and provisions that are to be settled by the delivery of a non-monetary asset.
Start Date:
Summary Guidance: The Start Date is either:
Initial Application Date for leases that have a Commencement Date prior to the Initial Application Date.
Commencement Date for leases that begin after the Initial Application Date.
Commencement Date is defined as the date on which the Lessor makes an underlying asset available for use by a Lessee.
Technical Guidance:
(IFRS 16: Appendix A, Defined Terms):
Commencement Date of the lease: The date on which the lessor makes an underlying asset available for use by a lessee.
End Date:
Summary Guidance: The End Date is typically the last day of the lease. However, you must consider early termination options and renewal options.
If you determine that you will exercise an early termination option because you are reasonably certain to end the lease prior to its stated end date, then use the date of the early termination option as the End Date.
A lease is no longer enforceable when both the Lessee and Lessor have the right to terminate without permission from the other party with no more than an insignificant penalty.
If you determine that you will exercise one or more renewal options, because you are reasonably certain to continue the lease, use the last day of the renewal option as the End Date.
Technical Guidance:
(IFRS 16: Paragraphs 18-20):
18 An entity shall determine the lease term as the non-cancellable period of a lease, together with both:
(a) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and
(b) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. 19 In assessing whether a lessee is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, an entity shall consider all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease, as described in paragraphs B37–B40. 20 A lessee shall reassess whether it is reasonably certain to exercise an extension option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant change in circumstances that:
(a) is within the control of the lessee; and
(b) affects whether the lessee is reasonably certain to exercise an option not previously included in its determination of the lease term, or not to exercise an option previously included in its determination of the lease term (as described in paragraph B41). (IFRS 16: Appendix B, B34): In determining the lease term and assessing the length of the non-cancellable period of a lease, an entity shall apply the definition of a contract and determine the period for which the contract is enforceable. A lease is no longer enforceable when the lessee and the lessor each has the right to terminate the lease without permission from the other party with no more than an insignificant penalty.
Lease Term:
Summary Guidance: The number of months from the Start Date to the End Date.
The Start Date is not the date you sign the lease but instead is the Commencement Date of the lease, which is defined as the date on which the Lessor makes an underlying asset available for use by a Lessee.
The End Date is typically the last day of the lease. However, you must consider early termination options and renewal options.
If you determine that you will exercise an early termination option because it is reasonably certain the lease will end prior to its stated end date, then use the date of the early termination option as the End Date.
A lease is no longer enforceable when both the Lessee and Lessor have the right to terminate without permission from the other party with no more than an insignificant penalty.
If you determine that you will exercise one or more renewal options, because you are reasonably certain to continue the lease, use the last day of the renewal option as the End Date.
Technical Guidance:
(IFRS 16: Paragraphs 18-20):
18 An entity shall determine the lease term as the non-cancellable period of a lease, together with both:
(a) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and
(b) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. 19 In assessing whether a lessee is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, an entity shall consider all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease, as described in paragraphs B37–B40. 20 A lessee shall reassess whether it is reasonably certain to exercise an extension option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant change in circumstances that:
(a) is within the control of the lessee; and
(b) affects whether the lessee is reasonably certain to exercise an option not previously included in its determination of the lease term, or not to exercise an option previously included in its determination of the lease term (as described in paragraph B41). (IFRS 16: Appendix B, B34):
In determining the lease term and assessing the length of the non-cancellable period of a lease, an entity shall apply the definition of a contract and determine the period for which the contract is enforceable. A lease is no longer enforceable when the lessee and the lessor each has the right to terminate the lease without permission from the other party with no more than an insignificant penalty.
ROU Asset Life:
Summary Guidance: The Right-of-Use (ROU) Asset Life (applicable to Lessees only) is almost always the same as the lease term. However, when the Lessee is Reasonably Certain to exercise an option to purchase the underlying asset, the ROU Asset Life is the useful life of the asset (i.e., how long the asset will be available for your use), which can be longer than the Lease Term. The ROU Asset is amortized over the ROU Asset Life.
The software uses a full month convention, amortizing evenly over the number of months in the ROU Asset Life. If the End Date is in the middle of the month, the ROU Asset Life defaults to Term minus one month to stop the depreciation in the second to last month. You can update ROU Asset Life as needed for different expense recognition. See the example below.
Start Date: 5 January 2026
End Date: 4 January 2027
Term: 13 Months
ROU Asset Life: 12 Months (Defaults to Term -1)
Amortization Expense over Term: CU12,000 Year-Month Amortization Expense when ROU Asset Life = 12 (Default) Amortization Expense when ROU Asset Life = 13 2026-01 CU1,000.00 CU923.08 2026-02 CU1,000.00 CU923.08 2026-03 CU1,000.00 CU923.08 2026-04 CU1,000.00 CU923.08 2026-05 CU1,000.00 CU923.08 2026-06 CU1,000.00 CU923.08 2026-07 CU1,000.00 CU923.08 2026-08 CU1,000.00 CU923.08 2026-09 CU1,000.00 CU923.08 2026-10 CU1,000.00 CU923.08 2026-11 CU1,000.00 CU923.08 2026-12 CU1,000.00 CU923.08 2027-01 CU0.00 CU923.04 Total CU12,000.00 CU12,000.00
ROU Asset that is investment property should not be depreciated; therefore, enter 999,999,999 in the ROU Asset Life field. This will reduce the depreciation expense to either 0.00 or an immaterial amount. For changes in fair value, see Add Revision/Investment Property.
Technical Guidance:
(IFRS 16: Paragraph 32)
If the lease transfers ownership of the underlying asset to the lessee by the end of the lease term or if the cost of the right-of-use asset reflects that the lessee will exercise a purchase option, the lessee shall depreciate the right-of use asset from the commencement date to the end of the useful life of the underlying asset. Otherwise, the lessee shall depreciate the right-of-use asset from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. (IFRS 16: Appendix A, Defined Terms):
Useful life means the period over which an asset is expected to be available for use by an entity; or the number of production or similar units expected to be obtained from an asset by an entity. (IFRS 16: Paragraphs 56-57) 56 If right-of-use assets meet the definition of investment property, a lessee shall apply the disclosure requirements in IAS 40. In that case, a lessee is not required to provide the disclosures in paragraph 53(a), (f), (h) or (j) for those right-of-use assets. 57 If a lessee measures right-of-use assets at revalued amounts applying IAS 16, the lessee shall disclose the information required by paragraph 77 of IAS 16 for those right-of-use assets.
Discount Rate:
Summary Guidance: The Discount Rate should be the annual rate implicit in the lease. If the implicit rate or the inputs to calculate the implicit rate are not readily determinable, which is often the case, the discount rate is then the Lessee's incremental borrowing rate(i.e.,what the Lessee can borrow over a similar term to obtain an asset of similar value in a similar economic environment).
The implicit rate is the rate derived when:
PV of Lease Payments + PV of Lessor’s Residual Value = Fair Value of Asset + Lessor’s Initial Direct Costs (Download IFRS Calculator)
Note: The sum of Total Payments must be greater than the Fair Value of the underlying asset in order to arrive at an implicit rate.
Technical Guidance:
(IFRS 16: Paragraph 26):
At the commencement date, a lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date. The lease payments shall be discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the lessee shall use the lessee’s incremental borrowing rate. (IFRS 16: Paragraph 40):
A lessee shall remeasure the lease liability by discounting the revised lease payments using a revised discount rate, if either:
(a) there is a change in the lease term, as described in paragraphs 20–21. A lessee shall determine the revised lease payments on the basis of the revised lease term; or
(b) there is a change in the assessment of an option to purchase the underlying asset, assessed considering the events and circumstances described in paragraphs 20–21 in the context of a purchase option. A lessee shall determine the revised lease payments to reflect the change in amounts payable under the purchase option. (IFRS 16: Paragraph 43):
A lessee shall use an unchanged discount rate, unless the change in lease payments results from a change in floating interest rates. In that case, the lessee shall use a revised discount rate that reflects changes in the interest rate. (IFRS 16: Appendix A, Defined Terms):
Lessee’s Incremental Borrowing Rate: The rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of use asset in a similar economic environment. Interest Rate Implicit in the Lease: The rate of interest that causes the present value of (a) the lease payments and (b) the unguaranteed residual value to equal the sum of (i) the fair value of the underlying asset and (ii) any initial direct costs of the lessor. Fair Value: For the purpose of applying the lessor accounting requirements in this Standard, the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.
Incentives Received (Lessee):
Summary Guidance: Incentives Received by a Lessee are:
Payments (at or before the Start Date) made by the Lessor to the Lessee (e.g., Lessor pays cash to Lessee for a furniture purchase).
The reimbursement or assumption by a Lessor of costs of a Lessee (e.g., Lessor pays off Lessee's remaining payments from a previous office lease in order to have them relocate early).
Any payments made by the Lessor to the Lessee after the Start Date should not be included in this field. Instead, these payments should be entered as a negative payment stream in the Lease Payments & Classification section of the software.
Technical Guidance:
(IFRS 16: Appendix, Defined Terms):
Lease Incentives: Payments made by lessor to lessee, or the reimbursement or assumption by a lessor of costs of a lessee. (IFRS 16: Paragraph 24):
The cost of the right-of-use asset shall comprise:
(a) the amount of the initial measurement of the lease liability, as described in paragraph 26;
(b) any lease payments made at or before the commencement date, less any lease incentives received;
(c) any initial direct costs incurred by the lessee; and
(d) an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories. The lessee incurs the obligation for those costs either at the commencement date or as a consequence of having used the underlying asset during a particular period.
Incentives Paid (Lessor):
Summary Guidance: Incentives Paid by a Lessor are:
Payments (at or before the Start Date) made by the Lessor to the Lessee (e.g., Lessor pays cash to Lessee for a furniture purchase).
The reimbursement or assumption by a Lessor of costs of a Lessee (e.g., Lessor pays off Lessee's remaining payments from a previous office lease in order to have them relocate early).
Any payments made by the Lessor to the Lessee after the Start Date should not be included in this field. Instead, these payments should be entered as a negative receipt stream in the Lease Receipts & Classification section of the software.
Technical Guidance:
(IFRS 16: Appendix, Defined Terms):
Lease Incentives: Payments made by lessor to lessee, or the reimbursement or assumption by a lessor of costs of a lessee.
Initial Direct Costs:
Summary Guidance: Initial Direct Costs are costs that would not occur if the lease were not signed (e.g., commissions to a broker). Initial Direct Costs do not include legal fees or tax advisory fees as those fees are not dependent on signing the lease.
Technical Guidance:
(IFRS 16: Appendix A, Defined Terms):
Initial direct costs: Incremental costs of obtaining a lease that would not have been incurred if the lease had not been obtained, except for such costs incurred by a manufacturer or dealer lessor in connection with a finance lease. (IFRS 16: Paragraph 24):
The cost of the right-of-use asset shall comprise:
(a) the amount of the initial measurement of the lease liability, as described in paragraph 26;
(b) any lease payments made at or before the commencement date, less any lease incentives received;
(c) any initial direct costs incurred by the lessee; and
(d) an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories. The lessee incurs the obligation for those costs either at the commencement date or as a consequence of having used the underlying asset during a particular period.
Add Lease Payment Stream (Lessee):
Summary Guidance: For a comprehensive list of payments that are considered Lease Payments, see our Technical Guidance section below. In summary, Lease Payments for Lessees include:
Fixed payments (including lease incentives paid after the Start Date, which reduce Lease Payments). If the incentives are received at or prior to the Start Date, include them in the Incentives Received field in the software.
Variable Lease Payments (see details and examples below) that depend on an index or rate that are measured on the Start Date
Residual Value Guarantees (only include amounts probable to be paid)
Purchase cost at the End Date of a lease
Termination penalties, if known at Start Date
Fixed payments for activities or costs that are not components of a contract (e.g., real estate taxes or insurance in an office lease)
Fixed Non-Lease component costs (e.g., fixed service charge related to maintenance of an office lease)
If policy election to combine lease and Non-Lease components was elected, include in Lease Payments
If policy election to combine lease and Non-Lease components was not elected, include in Non-Lease Payments
Below you will find definitions and examples of Lease Payments vs Variable Lease Expense. If payments do not meet the definition of Lease Payments, enter in the Variable & Other Payments tab.
Types of Payments
Lease Payment (used to measure Lease Liability)
Variable Lease Expense (period expense)
Payments dependent on an index or a rate initially measured at the Start Date. See Example 1 below.
X
Payments dependent on an index or a rate that change after the Start Date. See Example 1 below.
X
Payments that vary because of changes in circumstances, not related to an index or rate (e.g., % of sales). See Examples 2 & 3 below.
X
Examples of Payments Lease Payment Variable Lease Expense Example 1: Three-year office lease with CU100/year to increase by a cost of living index each year. Actual payments are CU100 in Year 1, CU102 in Year 2, and CU103 in Year 3. Yr1: CU100 Yr2: CU102 Yr3: CU103 Example 2: Three-year office lease with CU100/year and annual real estate taxes bill at CU20/year but trued up at the end of the each Year. The tax true ups are as follows: CU10 in Year 1, CU30 in Year 2, and CU50 in Year 3. Yr1: CU120 Yr2: CU120 Yr3: CU120 Yr1: CU10 Yr2: CU30 Yr3: CU50 Example 3: Three-year lease with payments based on 2% of sales. Sales were CU10,000, CU11,000, and CU12,000 in Years 1-3. Yr1: CU200 Yr2: CU220 Yr3: CU240
Technical Guidance:
(IFRS 16: Paragraph 27):
At the commencement date, the lease payments included in the measurement of the lease liability comprise the following payments for the right to use the underlying asset during the lease term that are not paid at the commencement date:
(a) fixed payments (including in-substance fixed payments as described in paragraph B42), less any lease incentives receivable;
(b) variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date (as described in paragraph 28); Each time there is a change in the payment resulting from a change in the reference index or rate, revise the Lease Payments to include this change (See Revision for more information) per IFRS 16, Paragraph 42(b). (c) amounts expected to be payable by the lessee under residual value guarantees;
(d) the exercise price of a purchase option if the lessee is reasonably certain to exercise that option (assessed considering the factors described in paragraphs B37–B40); and
(e) payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease. (IFRS 16: Paragraph 15):
As a practical expedient, a lessee may elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component. A lessee shall not apply this practical expedient to embedded derivatives that meet the criteria in paragraph 4.3.3 of IFRS 9 Financial Instruments. (IFRS 16: Appendix A, Defined Terms):
Lease Payments: Payments made by a lessee to a lessor relating to the right to use an underlying asset during the lease term, comprising the following:
(a) fixed payments (including in-substance fixed payments ), less any lease incentives;
(b) variable lease payments that depend on an index or a rate;
(c) the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
(d) payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease. For the lessee, lease payments also include amounts expected to be payable by the lessee under residual value guarantees. Lease payments do not include payments allocated to non-lease components of a contract, unless the lessee elects to combine non-lease components with a lease component and to account for them as a single lease component. (IFRS 16: Appendix B, B42):
Lease payments include any in-substance fixed lease payments. In-substance fixed lease payments are payments that may, in form, contain variability but that, in substance, are unavoidable. (IFRS 16: Appendix B, B33):
A contract may include an amount payable by the lessee for activities and costs that do not transfer a good or service to the lessee. For example, a lessor may include in the total amount payable a charge for administrative tasks, or other costs it incurs associated with the lease, that do not transfer a good or service to the lessee. Such amounts payable do not give rise to a separate component of the contract, but are considered to be part of the total consideration that is allocated to the separately identified components of the contract.
Add Lease Receipt Stream (Lessor):
Summary Guidance: For a comprehensive list of receipts that are considered Lease Receipts, see the Technical Guidance section below. In summary, Lease Receipts for Lessors include:
Fixed receipts (including lease incentives paid after the Start Date, which reduce Lease Revenue). If the incentives are paid at or prior to the Start Date, include them in the Incentives Paid field in the software.
Variable Lease Receipts (see details and examples below) that depend on an index or rate that are measured on the Start Date
Exercise price of a purchase option if the Lessee is reasonably certain to exercise that option
Penalties for terminating the lease, if the lease term reflects the Lessee exercising an option to terminate the lease
Residual Value Guarantees:
Include in Lease Receipts the full (not just amounts probable) Residual Value Guarantees from the Lessee or third parties. At the end of the term, if the amount received is different from what is initially entered, create a Revision (select “Modify term or receipts”) to enter updated receipt information.
Fixed receipts for activities or costs that are not components of a contract (e.g., real estate taxes or insurance in an office lease).
Below you will find definitions and examples of Lease Receipts vs Variable Lease Receipts. If receipts do not meet the definition of Lease Receipts, enter in the Variable & Other Receipts tab.
Types of Receipts
Lease Receipts
Variable Lease Revenue (period receipts)
Receipts dependent on an index or a rate initially measured at the Start Date. See Example 1 below.
X
Receipts dependent on an index or a rate that change after the Start Date. See Example 1 below.
X
Payments that vary because of changes in circumstances, not related to an index or rate (e.g., % of sales). See Examples 2 & 3 below.
X
Residual Value Guarantee
X Include full amount (not just amount probable). At the end of the term, if the amount received is different from what is entered, create a Revision to enter actual receipts.
Examples of Receipts Lease Receipt Variable Lease Revenue Example 1: Three-year office lease with CU100/year to increase by a cost of living index each year. Actual receipts are CU100 in Year 1, CU102 in Year 2, and CU103 in Year 3. Yr1: CU100 Yr2: CU102 Yr3: CU103 Example 2: Three-year office lease with CU100/year and annual real estate taxes bill at CU20/year but trued up at the end of the each year. The tax true ups are as follows: CU10 in Year 1, CU30 in Year 2, and CU50 in Year 3. Yr1: CU120 Yr2: CU120 Yr3: CU120 Yr1: CU10 Yr2: CU30 Yr3: CU50 Example 3: Three-year lease with receipts based on 2% of sales. Sales were CU10,000, CU11,000 and CU12,000 in Years 1-3. Yr1: CU200 Yr2: CU220 Yr3: CU240 Example 4: Three-year office lease with CU100/year paid in arrears. Residual Value Guarantee by Lessee of CU150 was expected at end of lease term. Furthermore, actual amount paid as a Residual Value Guarantee was CU280. Initial: Yr1 = CU100 Yr2 = CU100 Yr3 = CU250 Revised at end of term: Yr3 = CU280
Technical Guidance:
(IFRS 16: Appendix A, Defined Terms):
Lease Payments: Payments made by a lessee to a lessor relating to the right to use an underlying asset during the lease term, comprising the following:
(a) fixed payments (including in-substance fixed payments ), less any lease incentives;
(b) variable lease payments that depend on an index or a rate;
(c) the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
(d) payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease. For the lessor, lease payments also include any residual value guarantees provided to the lessor by the lessee, a party related to the lessee or a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee. Lease payments do not include payments allocated to non-lease components. Each time there is a change in the receipts resulting from a change in the reference index or rate, revise the Lease Receipts to include this change (See Revision for more information) per IFRS 16, Paragraph 42(b). (IFRS 16: Appendix B, B42):
Lease payments include any in-substance fixed lease payments. In-substance fixed lease payments are payments that may, in form, contain variability but that, in substance, are unavoidable. (IFRS 16: Appendix B, B33):
A contract may include an amount payable by the lessee for activities and costs that do not transfer a good or service to the lessee. For example, a lessor may include in the total amount payable a charge for administrative tasks, or other costs it incurs associated with the lease, that do not transfer a good or service to the lessee. Such amounts payable do not give rise to a separate component of the contract, but are considered to be part of the total consideration that is allocated to the separately identified components of the contract.
Residual Value Guarantee:
Summary Guidance: Guarantee made by the Lessee, or a third-party, to the Lessor, that ensures that the value of the underlying asset returned to the Lessor at the end of the lease, will be at a specified amount.
Lessee:Only amounts probable to be payable at the end of the lease term are added to the Lease Payments. If there is a change in the amount probable, create a Revision (select “Residual Value Guarantee (RVG)”) to enter updated payment information.
Lessor:Include in Lease Receipts the full (not just amounts expected) Residual Value Guarantees from the Lessee or third parties. At the end of the term, if the amount received is different from what is initially entered, create a Revision (select “Modify term or receipts”) to enter updated receipt information.
Technical Guidance:
(IFRS 16: Appendix A, Defined Terms):
Lease Payments: are payments made by a lessee to a lessor relating to the right to use an underlying asset during the lease term, comprising the
following:
(a) fixed payments (including in-substance fixed payments ), less any lease incentives;
(b) variable lease payments that depend on an index or a rate;
(c) the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
(d) payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease. For the lessee, lease payments also include amounts expected to be payable by the lessee under residual value guarantees. Lease payments do not include payments allocated to non-lease components of a contract, unless the lessee elects to combine non-lease components with a lease component and to account for them as a single lease component. For the lessor, lease payments also include any residual value guarantees provided to the lessor by the lessee, a party related to the lessee or a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee. Lease payments do not include payments allocated to non-lease components. Residual Value Guarantee: A guarantee made to a lessor by a party unrelated to the lessor that the value (or part of the value) of an underlying asset at the end of a lease will be at least a specified amount.
Classification:
Summary Guidance: There are several Lease Classification depending on whether the party is a Lessee or a Lessor under IFRS.
Lease Classification
Lease Classification
Lessee
No classification distinction
Lessor
Operating Leases
Finance Leases
A Lessor will classify leases that meet the below criteria as Finance Leases. All other leases will be classified as Operating Leases.
Classification Criteria: a. Transfers ownership to Lessee b. Option to purchase that Lessee is reasonably certain to exercise c. Lease Term is a major part (e.g., 75%) of its economic life (life of the asset by all users, not just the Lessee) d. Present value of Lease Payments and residual value guarantee by Lessee that is substantially all (e.g., 90%) of the fair market value e. Leased asset has no future use by Lessor
Additional Classification Criteria: Classification criteria are not always conclusive. If it is clear from other features that the lease does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset, the lease is classified as an operating lease.
Technical Guidance:
(IFRS: Paragraphs 63-65):
63 Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract. Examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease are:
(a) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term;
(b) the lessee has the option to purchase the underlying asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the
inception date, that the option will be exercised;
(c) the lease term is for the major part of the economic life of the underlying asset even if title is not transferred;
(d) at the inception date, the present value of the lease payments amounts to at least substantially all of the fair value of the underlying asset; and
(e) the underlying asset is of such a specialised nature that only the lessee can use it without major modifications. 64 Indicators of situations that individually or in combination could also lead to a lease being classified as a finance lease are:
(a) if the lessee can cancel the lease, the lessor’s losses associated with the cancellation are borne by the lessee;
(b) gains or losses from the fluctuation in the fair value of the residual accrue to the lessee (for example, in the form of a rent rebate equaling most of the sales proceeds at the end of the lease); and
(c) the lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent. 65 The examples and indicators in paragraphs 63–64 are not always conclusive. If it is clear from other features that the lease does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset, the lease is classified as an operating lease. For example, this may be the case if ownership of the underlying asset transfers at the end of the lease for a variable payment equal to its then fair value, or if there are variable lease payments, as a result of which the lessor does not transfer substantially all such risks and rewards.
Variable & Other Payments (Lessee):
Summary Guidance: This is an optional section in the software that can be used to track Variable Lease Expenses and Non-Lease Payments. The reason for including each is discussed below.
Variable Lease Expense is a required disclosure. While including this information in the software is optional, it is recommended for ease in populating your disclosure.
The different types of Variable Lease Payments, and the accounting treatment for each, are summarized below.
Types of Variable Lease Payments
Lease Payment (used to measure Lease ROU Asset and Lease Liability)
Variable Lease Expense (period expense)
Payments dependent on an index or a rate initially measured at the Start Date. See Examples 1 below.
X
Payments dependent on an index or a rate that change after the Start Date. See Examples 1 below.
X
Payments that vary because of changes in circumstances, not related to an index or rate (e.g., % of sales). See Example 2 & 3 below.
X
Examples of Payments Lease Payment Variable Lease Expense Example 1: Three-year office lease with CU100/year to increase by a cost of living index each year. Actual payments are CU100 in Year 1, CU102 in Year 2, and CU103 in Year 3. Yr1 = CU100 Yr2 = CU102 Yr3 = CU103 Example 2: Three-year office lease with CU100/year and annual real estate taxes bill at CU20/year but trued up at the end of the each year. The tax true ups are as follows: CU10 in Year 1, CU30 in Year 2, and CU50 in Year 3. Yr1 = CU120 Yr2 = CU120 Yr3 = CU120 Yr1 = CU10 Yr2 = CU30 Yr3 = CU50 Example 3: Three-year lease with payments based on 2% of sales. Sales were CU10,000, CU11,000 and CU12,000 in Years 1-3. Yr1 = CU200 Yr2 = CU220 Yr3 = CU240
Non-Lease Payments are any payments that are not deemed Lease Payments or Variable Lease Expenses, such as Non-Lease components. An example of a Non-Lease component (transfer of a good or service) is payment for common area maintenance.
Technical Guidance:
(IFRS: Paragraphs 12-16):
12 For a contract that is, or contains, a lease, an entity shall account for each lease component within the contract as a lease separately from non-lease components of the contract, unless the entity applies the practical expedient in paragraph 15. Paragraphs B32–B33 set out guidance on separating components of a contract. 13 For a contract that contains a lease component and one or more additional lease or non-lease components, a lessee shall allocate the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components. 14 The relative stand-alone price of lease and non-lease components shall be determined on the basis of the price the lessor, or a similar supplier, would charge an entity for that component, or a similar component, separately. If an observable stand-alone price is not readily available, the lessee shall estimate the stand-alone price, maximising the use of observable information. 15 As a practical expedient, a lessee may elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component. A lessee shall not apply this practical expedient to embedded derivatives that meet the criteria in paragraph 4.3.3 of IFRS 9 Financial Instruments. 16 Unless the practical expedient in paragraph 15 is applied, a lessee shall account for non-lease components applying other applicable Standards.
Variable & Non-Lease Receipts (Lessor):
Summary Guidance: This is an optional section in the software that can be used to track variable lease and Non-Lease receipts.
Variable Lease Receipt is a required footnote disclosure. While including this information in the software is optional, it is recommended for ease in populating your disclosure
The different types of variable lease receipts, and the accounting treatment for each, are summarized below.
Types of Receipts
Lease Receipts
Variable Lease Revenue (period expense)
Receipts dependent on an index or a rate initially measured at the Start Date. See Examples 1 below.
X
Receipts dependent on an index or a rate that change after the Start Date. See Examples 1 below.
X
Payments that vary because of changes in circumstances, not related to an index or rate (e.g., % of sales). See Example 2 & 3 below.
X
Residual Value Guarantee
X Include full amount (not just amount probable). At the end of the term, if the amount received is different from what is entered above, select Add Revision to enter actual receipts.
Examples of Receipts Lease Receipt Variable Lease Revenue Example 1: Three-year office lease with CU100/year to increase by a cost of living index each year. Actual receipts are CU100 in Year 1, CU102 in Year 2, and CU103 in Year 3. Yr1 = CU100 Yr2 = CU102 Yr3 = CU103 Example 2: Three-year office lease with CU100/year and annual real estate taxes bill at CU20/year but trued up at the end of the each year. The tax true ups are as follows: CU10 in Year 1, CU30 in Year 2, and CU50 in Year 3. Yr1 = CU120 Yr2 = CU120 Yr3 = CU120 Yr1 = CU10 Yr2 = CU30 Yr3 = CU50 Example 3: Three-year lease with receipts based on 2% of sales. Sales were CU10,000, CU11,000 and CU12,000 in Years 1-3. Yr1 = CU200 Yr2 = CU220 Yr3 = CU240 Example 4: Three-year office lease with CU100/year paid in arrears. Residual Value Guarantee by Lessee of CU150 was expected at end of lease term. Furthermore, actual amount paid as a Residual Value Guarantee was CU280. Initial: Yr1 = CU100 Yr2 = CU100 Yr3 = CU250 Revised at end of term: Yr3 = CU280
Non-Lease Receipts are any receipts that are not deemed Lease Receipts or Variable Lease Revenue, such as Non-Lease components. An example of a Non-Lease component (transfer of a good or service) includes a receipt related to common area maintenance.
Technical Guidance:
(IFRS: Paragraph 12,17):
12 For a contract that is, or contains, a lease, an entity shall account for each lease component within the contract as a lease separately from non-lease components of the contract, unless the entity applies the practical expedient in paragraph 15. Paragraphs B32–B33 set out guidance on separating components of a contract. 17 For a contract that contains a lease component and one or more additional lease or non-lease components, a lessor shall allocate the consideration in the contract applying paragraphs 73–90 of IFRS 15. (IFRS 16: Appendix B, B33):
A contract may include an amount payable by the lessee for activities and costs that do not transfer a good or service to the lessee. For example, a lessor may include in the total amount payable a charge for administrative tasks, or other costs it incurs associated with the lease, that do not transfer a good or service to the lessee. Such amounts payable do not give rise to a separate component of the contract, but are considered to be part of the total consideration that is allocated to the separately identified components of the contract.
Lease Term Guidance Wizard
Lease Term Guidance Wizard: This wizard is meant to help you in 2 ways:
Guide you to correctly identify the lease term when there are early termination options and renewal options, as judgement is involved.
Create an audit trail of your answers for review by you, management, or your auditors.
Lease Term:
Summary Guidance: The number of months from the Start Date to the End Date.
The Start Date is not the date you sign the lease but instead is the Commencement Date of the lease, which is defined as the date on which the Lessor makes an underlying asset available for use by a Lessee.
The End Date is typically the last day of the lease. However, you must consider early termination options and renewal options.
If you determine that you will exercise an early termination option because you are reasonably certain to end the lease prior to its stated end date, then use the date of the early termination option as the End Date.
A lease is no longer enforceable when both the Lessee and Lessor have the right to terminate without permission from the other party with no more than an insignificant penalty.
If you determine that you will exercise one or more renewal options, because you are reasonably certain to continue the lease, use the last day of the renewal option as the end date.
Technical Guidance:
(IFRS 16: Paragraphs 18-20):
18 An entity shall determine the lease term as the non-cancellable period of a lease, together with both:
(a) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and
(b) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. 19 In assessing whether a lessee is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, an entity shall consider all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease, as described in paragraphs B37–B40. 20 A lessee shall reassess whether it is reasonably certain to exercise an extension option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant change in circumstances that:
(a) is within the control of the lessee; and
(b) affects whether the lessee is reasonably certain to exercise an option not previously included in its determination of the lease term, or not to exercise an option previously included in its determination of the lease term (as described in paragraph B41). (IFRS 16: Appendix B, B34):
In determining the lease term and assessing the length of the non-cancellable period of a lease, an entity shall apply the definition of a contract and determine the period for which the contract is enforceable. A lease is no longer enforceable when the lessee and the lessor each has the right to terminate the lease without permission from the other party with no more than an insignificant penalty.
Reasonably Certain:
Summary Guidance: It is an assessment considering the following economic incentives/factors relevant to that assessment:
Contract-based factors
Asset-based factors
Market-based factors
Entity-based factors
An entity’s assessment will often require the consideration of a combination of those factors, as they are interrelated.
Technical Guidance:
(IFRS 16: Paragraph B37-B40):
B37 At the commencement date, an entity assesses whether the lessee is reasonably certain to exercise an option to extend the lease or to purchase the underlying asset, or not to exercise an option to terminate the lease. The entity considers all relevant facts and circumstances that create an economic incentive for the lessee to exercise, or not to exercise, the option, including any expected changes in facts and circumstances from the commencement date until the exercise date of the option. Examples of factors to consider include, but are not limited to: (a) contractual terms and conditions for the optional periods compared to market rates, such as:
(i) the amount of payments for the lease in any optional period;
(ii) the amount of variable payments for the lease or other contingent payments, such as payments resulting from termination penalties and residual value guarantees; and
(iv) the terms and conditions of any options that are exercisable after initial option periods (for example, a purchase option that is exercisable at the end of the extension period at a rate that is currently below market rates)
(b) significant leasehold improvements undertaken (or expected to be undertaken) over the term of the contract that are expected to have significant economic benefit for the lessee when the option to extend or terminate the lease, or to purchase the underlying asset, becomes exercisable;
(c) costs relating to the termination of the lease, such as negotiation costs, relocation costs, costs of identifying another underlying asset suitable for the lessee’s needs, costs of integrating a new asset into the lessee’s operations, or termination penalties and similar costs, including costs associated with returning the underlying asset in a contractually specified condition or to a contractually specified location;
(d) the importance of that underlying asset to the lessee’s operations, considering, for example, whether the underlying asset is a specialised asset, the location of the underlying asset and the availability of suitable alternatives; and
(e) conditionality associated with exercising the option (ie when the option can be exercised only if one or more conditions are met), and the likelihood that those conditions will exist. B38 An option to extend or terminate a lease may be combined with one or more other contractual features (for example, a residual value guarantee) such that the lessee guarantees the lessor a minimum or fixed cash return that is substantially the same regardless of whether the option is exercised. In such cases, and notwithstanding the guidance on in-substance fixed payments in paragraph B42, an entity shall assume that the lessee is reasonably certain to exercise the option to extend the lease, or not to exercise the option to terminate the lease. B39 The shorter the non-cancellable period of a lease, the more likely a lessee is to exercise an option to extend the lease or not to exercise an option to terminate the lease. This is because the costs associated with obtaining a replacement asset are likely to be proportionately higher the shorter the non-cancellable period. B40 A lessee’s past practice regarding the period over which it has typically used particular types of assets (whether leased or owned), and its economic reasons for doing so, may provide information that is helpful in assessing whether the lessee is reasonably certain to exercise, or not to exercise, an option. For example, if a lessee has typically used particular types of assets for a particular period of time or if the lessee has a practice of frequently exercising options on leases of particular types of underlying assets, the lessee shall consider the economic reasons for that past practice in assessing whether it is reasonably certain to exercise an option on leases of those assets.
Major Part:
Summary Guidance: Generally, the Lease Term is considered a Major Part of the asset’s economic life if the Lease Term is at least 75% of the asset’s economic life. Technical guidance has removed the bright line of 75%; however, that threshold is still considered a reasonable measurement. You may elect an alternate threshold in your lease accounting policy.
Technical Guidance:
(IFRS: Paragraph 63): Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract. Examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease are: (a) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term;
(b) the lessee has the option to purchase the underlying asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception date, that the option will be exercised;
(c) the lease term is for the major part of the economic life of the underlying asset even if title is not transferred;
(d) at the inception date, the present value of the lease payments amounts to at least substantially all of the fair value of the underlying asset; and
(e) the underlying asset is of such a specialised nature that only the lessee can use it without major modifications.
Tool Tip: If you have an underlying asset type (e.g., office lease) in which you cannot determine the true economic life of the underlying asset but the number is so large that the answer is positively "No" to the question, you may want to determine a policy to enter the same large number (1000 months) in order to achieve a “No” answer.
Substantially All:
Summary Guidance: The present value of the Lease Payments is Substantially All of the leased asset’s fair market value. Historically, 90% was used as the threshold to measure "substantially all". Technical guidance has removed this bright line; however, the threshold is still considered a reasonable measure. You may elect an alternative threshold in your lease accounting policy.
Technical Guidance:
(IFRS: Paragraph 63): Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract. Examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease are: (a) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term;
(b) the lessee has the option to purchase the underlying asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception date, that the option will be exercised;
(c) the lease term is for the major part of the economic life of the underlying asset even if title is not transferred;
(d) at the inception date, the present value of the lease payments amounts to at least substantially all of the fair value of the underlying asset; and
(e) the underlying asset is of such a specialised nature that only the lessee can use it without major modifications.
Tool Tip: If you have an underlying asset type (e.g., office lease) in which you cannot determine the true fair value of the underlying asset but the number is so large that the answer is positively "No" to the question, you may want to determine a policy to enter the same large number (CU1,000,000,000) in order to achieve a “No” answer.
Reasonably Certain:
Summary Guidance: Reasonably Certain is not a guess at what you would most likely do; rather, it is an assessment considering the following economic incentives/factors relevant to that assessment:
Contract-based factors
Asset-based factors
Market-based factors
Entity-based factors
An entity’s assessment will often require the consideration of a combination of those factors, as they are interrelated.
Technical Guidance:
(IFRS 16: Paragraphs B37-B40):
B37 At the commencement date, an entity assesses whether the lessee is reasonably certain to exercise an option to extend the lease or to purchase the underlying asset, or not to exercise an option to terminate the lease. The entity considers all relevant facts and circumstances that create an economic incentive for the lessee to exercise, or not to exercise, the option, including any expected changes in facts and circumstances from the commencement date until the exercise date of the option. Examples of factors to consider include, but are not limited to: (a) contractual terms and conditions for the optional periods compared to market rates, such as:
(i) the amount of payments for the lease in any optional period;
(ii) the amount of variable payments for the lease or other contingent payments, such as payments resulting from termination penalties and residual value guarantees; and
(iv) the terms and conditions of any options that are exercisable after initial option periods (for example, a purchase option that is exercisable at the end of the extension period at a rate that is currently below market rates)
(b) significant leasehold improvements undertaken (or expected to be undertaken) over the term of the contract that are expected to have significant economic benefit for the lessee when the option to extend or terminate the lease, or to purchase the underlying asset, becomes exercisable;
(c) costs relating to the termination of the lease, such as negotiation costs, relocation costs, costs of identifying another underlying asset suitable for the lessee’s needs, costs of integrating a new asset into the lessee’s operations, or termination penalties and similar costs, including costs associated with returning the underlying asset in a contractually specified condition or to a contractually specified location;
(d) the importance of that underlying asset to the lessee’s operations, considering, for example, whether the underlying asset is a specialised asset, the location of the underlying asset and the availability of suitable alternatives; and
(e) conditionality associated with exercising the option (ie when the option can be exercised only if one or more conditions are met), and the likelihood that those conditions will exist. B38 An option to extend or terminate a lease may be combined with one or more other contractual features (for example, a residual value guarantee) such that the lessee guarantees the lessor a minimum or fixed cash return that is substantially the same regardless of whether the option is exercised. In such cases, and notwithstanding the guidance on in-substance fixed payments in paragraph B42, an entity shall assume that the lessee is reasonably certain to exercise the option to extend the lease, or not to exercise the option to terminate the lease. B39 The shorter the non-cancellable period of a lease, the more likely a lessee is to exercise an option to extend the lease or not to exercise an option to terminate the lease. This is because the costs associated with obtaining a replacement asset are likely to be proportionately higher the shorter the non-cancellable period. B40 A lessee’s past practice regarding the period over which it has typically used particular types of assets (whether leased or owned), and its economic reasons for doing so, may provide information that is helpful in assessing whether the lessee is reasonably certain to exercise, or not to exercise, an option. For example, if a lessee has typically used particular types of assets for a particular period of time or if the lessee has a practice of frequently exercising options on leases of particular types of underlying assets, the lessee shall consider the economic reasons for that past practice in assessing whether it is reasonably certain to exercise an option on leases of those assets.
Edit Revision Assistant
Summary Guidance: Adding a Revision is how you amend, modify, remeasure, or change a lease at or before the end of the lease. To add a Revision, complete the following steps:
On the My Leases tab, click the vertical ellipses on the applicable lease and select Edit to display the Edit Revision Assistant
Select any of the Modification, Remeasurement, and Other options and select Continue
Enter the Revision Date and select Save and Continue
This will freeze the lease and then allow you to change parameters that only affect the lease on/after the date of the Revision.
Add Revision (Lessee):
Refer to the below section for further details and guidance to Lessee Revisions.
Modification: This is an amendment to a lease (including full or partial lease termination). Full Termination: If a Term of 1 month is entered, the ROU Asset & Lease Liability will be reduced to zero on the Revision Date, with any difference booked to the Gain/Loss Account selected in “GL Accounts” tab. Partial Termination is a reduction in scope (e.g., reducing square feet of an office lease). See below for guidance on steps for completion. If the following applies, do not create a Revision of the original lease; instead, create a new lease for only the Modification (amendment): Modification grants an additional right of use not in the original lease (e.g., original lease includes 10,000 sq. ft. and amendment includes an additional 2,000 sq. ft.). Lease payments increased commensurate with standalone price of additional right of use. Remeasurement: Reassess lease due to an event (i.e., no contract amendment). A remeasurement comes in the following three forms: Contingency resolved such that variable lease payments become fixed Change in amounts probable under Residual Value Guarantee Reassessment of: lease term (early termination or renewal) or purchase option ONLY IF one of the following events occurs: significant event/change in circumstances that is in control of Lessee that affects whether they exercise or not exercise an option event occurs (that was previously written into the contract) that obliges the Lessee to exercise or not exercise an option Lessee elects to exercise an option (when previously determined it wouldn't) Lessee elects to not to exercise an option (when previously determined it would) Change in index: Change in payments tied to an index (e.g., cost-of-living adjustment) Change in floating interest rate: Change in payments tied to a floating interest rate (e.g., LIBOR) Impairment of ROU Asset: After a revision is created, enter the ROU Asset value after impairment in the Revision Information tab. The adjustment to the ROU Asset is recognized in a Gain/Loss Account. If impairment and modification occur at the same time, follow the steps below in order: Create a Modification revision (click Edit/Modify terms or payments and fill in required fields) Create an Impairment revision, one month following previous revision (click Edit/Impairment of ROU Asset and fill in required fields) Derecognize ROU asset under certain subleases: The original Lessee (as sublessor) shall continue to account for the original lease in one of the following ways: If the sublessor classifies the sublease as an operating lease, account for the original lease as you did before the sublease. If the sublessor classifies the sublease as a finance lease, account for the original lease by derecognizing the ROU Asset and accounting for the liability the same as before the sublease. In the software, do the following: Click Edit and then select Derecognize ROU Asset Enter the Revision Date and select Save and Continue On Descriptions & Term tab, Input ROU Asset Life = 0, which causes the value of the ROU Asset to be transferred to a Gain/Loss Account. Reserve the Gain/Loss Account as part of the initial entry of a Lessor of the subleased asset (outside of scope of the software) Qualitative Lease Information: This Revision is not part of the technical guidance, but rather a practical consideration in which you can change a parameter of the lease (e.g., Location, GL Accounts, Cost Centers) in the middle of the lease, allowing the Lessee to report on that lease differently from the date of the Revision. Investment Property
A Lessee that has applied the fair value model in IAS 40 Investment Property to a ROU Asset, that meets the definition of investment property, can update the fair value by following the steps below in order: Click Edit/Impairment of ROU Asset After a revision is created, enter the updated fair value of the ROU Asset in the Revision Information tab. The adjustment to the ROU Asset is recognized in a Gain/Loss Account. Where fair value has increased: Debit: ROU Asset Credit: Gain on Investment Property (P&L) Where fair value has decreased: Debit: Loss on Investment Property (P&L) Credit: ROU Asset On the Description & Term tab: Enter the remaining Term of the lease ROU Asset that is investment property should not be depreciated; therefore, enter 999,999,999 in the ROU Asset Life field. This will reduce the depreciation expense to either 0.00 or an immaterial amount. On the Lease Payments tab, enter remaining Lease Payments from Start Date of Revision Revision Types:
The chart below explains which field values the software carries forward from the prior revision of the lease (“S” for Same) and which field values require user to input data (“Update”) based on revision type. Revision Type Historical fx Rate (1) Discount Rate (2) Modification | Change lease term or timing/value of lease payments (including Full termination) Update Update Modification | Partial Termination Update Update Remeasurement | Contingency resolved variable to fixed S S Remeasurement | Reassessment of options: exercise of termination, renewal, or purchase option(s) Update Update Remeasurement | Change in amounts probable under Residual Value Guarantees S S Remeasurement | Change in payments due to a change in an index S S Remeasurement | Change in payments due to payments tied to a floating interest rate Update Update Impairment of ROU Asset S S Derecognize ROU Asset under certain subleases S S Qualitative Lease Information: change lease data in the middle of the lease (e.g., location, GL accounts) S S (1) Historical fx Rate:
No technical guidance exists as to updating Historical fx Rate (when local currency is different than functional currency) for a Revision. Therefore, the same technical guidance on updating the Discount Rate has been followed. (2) Discount Rate: (Paragraphs 40-43) 40 A lessee shall remeasure the lease liability by discounting the revised lease payments using a revised discount rate, if either: (a) there is a change in the lease term, as described in paragraphs 20–21. A lessee shall determine the revised lease payments on the basis of the revised lease term; or (b) there is a change in the assessment of an option to purchase the underlying asset, assessed considering the events and circumstances described in paragraphs 20–21 in the context of a purchase option. A lessee shall determine the revised lease payments to reflect the change inamounts payable under the purchase option. 41 In applying paragraph 40, a lessee shall determine the revised discount rate as the interest rate implicit in the lease for the remainder of the lease term, if that rate can be readily determined, or the lessee’s incremental borrowing rate at the date of reassessment, if the interest rate implicit in the lease cannot be readily determined. 42 A lessee shall remeasure the lease liability by discounting the revised lease payments, if either: (a) there is a change in the amounts expected to be payable under a residual value guarantee. A lessee shall determine the revised lease payments to reflect the change in amounts expected to be payable under the residual value guarantee. (b) there is a change in future lease payments resulting from a change in an index or a rate used to determine those payments, including for example a change to reflect changes in market rental rates following a market rent review. The lessee shall remeasure the lease liability to reflect those revised lease payments only when there is a change in the cash flows (ie when the adjustment to the lease payments takes effect). A lessee shall determine the revised lease payments for the remainder of the lease term based on the revised contractual payments. 43 In applying paragraph 42, a lessee shall use an unchanged discount rate, unless the change in lease payments results from a change in floating interest rates. In that case, the lessee shall use a revised discount rate that reflects changes in the interest rate. Technical Guidance: The technical guidance for all types of Revisions are too numerous to restate, but referenced below are the main provisions: Modifications/Remeasurements: (Paragraphs 39-46)
Impairment: (Paragraph 33)
Change in Index/Change in Interest Rate: (Paragraphs 42-43)
Derecognize ROU Asset under certain subleases: (BC 233)
Add Revision (Lessor):
Refer to the below section for further details and guidance to Lessor Revisions.
Modification: This is an amendment to a lease (including full or partial lease termination). Full Termination: If a Term of 1 month is entered, the LT & ST Deferred Rent and Initial Direct Cost Asset will be reduced to zero on the Revision Date, with any difference booked to the Gain/Loss Account selected in “GL Accounts” tab. Remeasurement: Reassess lease due to an event (i.e., no contract amendment). A remeasurement comes in the following forms: Exercise of a) lease term (early termination or renewal) or b) purchase option ONLY IF one of the following events occurs: event occurs (that was previously written into the contract) that obliges the Lessee to exercise or not exercise an option* Lessee elects to exercise an option* (when previously determined it wouldn't) Lessee elects to not to exercise an option* (when previously determined it would)
*option can be an early termination option, renewal option or option to purchase the underlying asset Update Residual Value Guarantees at end of term for actual amount received Change in receipts due to a change in an index (e.g., cost of living adjustment) used to determine those receipts. Change in receipts due to payments tied to a floating interest rate (e.g., LIBOR) used to determine those receipts. Qualitative Lease Information: This Revision is not part of the technical guidance, but rather a practical consideration in which you can change a parameter of the lease (e.g., Location, GL Accounts, Cost Centers) in the middle of the lease, allowing the Lessor to report on that lease differently from the date of the Revision. Lessor Revision Types: The chart below explains which field values to carry forward from the prior revision of the lease (“S” for Same) and which field values require the user to input data (“Update”) based on the revision type. Revision Type Historical fx Rate (1) Discount Rate (2) Modification | Change lease term or timing/value of lease receipts (including Full Termination) Update Update Remeasurement | Reassessment of options: exercise of termination, renewal, or purchase option(s) S S Remeasurement | Update Residual Value Guarantees at end of term for actual amount received S S Remeasurement | Change in receipts due to a change in an index S S Remeasurement | Change in receipts due to receipts tied to a floating interest rate S S Qualitative Lease Information: change lease data in the middle of the lease (e.g., location, GL accounts) S S (1) Historical FX Rate:
No technical guidance exists when a Lessor should update for a Revision that is not a modification. One interpretation is to follow technical guidance for Classification (IFRS 16: Paragraph 66). (2) Discount Rate: (IFRS 16: Paragraph 68, Paragraph 87)
No technical guidance exists when a Lessor should update for a Revision that is not a modification. One interpretation is to follow technical guidance for Classification (IFRS 16: Paragraph 66). Technical Guidance: (IFRS 16: Paragraph 66):
Lease classification is made at the inception date and is reassessed only if there is a lease modification. Changes in estimates (for example, changes in estimates of the economic life or of the residual value of the underlying asset), or changes in circumstances (for example, default by the lessee), do not give rise to a new classification of a lease for accounting purposes. (IFRS 16: Paragraph 85):
A lessor shall apply IAS 36 to determine whether an underlying asset subject to an operating lease is impaired and to account for any impairment loss identified. (IFRS 16: Paragraph 87):
A lessor shall account for a modification to an operating lease as a new lease from the effective date of the modification, considering any prepaid or accrued lease payments relating to the original lease as part of the lease receipts for the new lease.
Partial Termination: Update ROU Asset Value
Summary Guidance: Because you have selected Partial Termination, you have the option to enter a value to over-write the ROU asset, creating a Gain/Loss to the account selected in the GL Accounts tab. Follow the steps below:
Create a Modification revision (click Edit > Partial Termination)
Complete all required fields of this Revision without entering a new ROU Asset Value on the Revision Information tab.
Export the Local Currency Amortization Schedule by selecting the lease, including all Revisions.
GL Start Date: Month prior to Start of Revision
GL End Date: Month of Revision
The technical guidance offers two ways to calculate the new ROU Asset Value. Fill out the ROU Asset Calculator to determine the ROU Asset Value under either method. Edit the Revision and enter the updated ROU Asset Value in the Revision Information tab.
Technical Guidance:
IFRS 16:
Partial Termination: (Paragraph 46) For a lease modification that is not accounted for as a separate lease, the lessee shall account for the remeasurement of the lease liability by: (a) decreasing the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease for lease modifications that decrease the scope of the lease. The lessee shall recognise in profit or loss any gain or loss relating to the partial or full termination of the lease. (b) making a corresponding adjustment to the right-of-use asset for all other lease modifications.