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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 Depreciation Expense or the Lessor’s Deferred Rent and Revenue from the Local Currency to the Functional Currency.
Technical Guidance:
(FRS 102: Section 30.9):
At the end of each reporting period, an entity shall: (a) translate foreign currency monetary items using the closing rate; (b) translate non-monetary items that are measured in terms of historical cost in a foreign currency using the exchange rate at the date of the transaction; and (c) translate non-monetary items that are measured at fair value in a foreign currency using the exchange rates at the date when the fair value was determined.
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:
(FRS 102: Appendix I Glossary):
Commencement date (of a lease): The date on which a 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 there is not an economic incentive to continue the lease, 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:
(FRS 102: Section 20.38-43):
20.38 An entity shall determine the lease term as the aggregate of: (a) the non-cancellable period of a lease; (b) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and (c) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. If only the lessor has the right to terminate the lease, the non-cancellable period of the lease includes the period covered by the lessor’s option to terminate the lease. 20.39 In assessing the length of the non-cancellable period of a lease, an entity shall 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. 20.40 At the commencement date, an entity (whether the lessee or the lessor) 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. As a result of paragraph 20.38, when a lessee is able to choose between a shorter or a longer period, the lease term shall be the shorter period unless the lessee is reasonably certain to choose the longer period. 20.41 Factors to consider in the assessment of whether an option in a lease is reasonably certain to be exercised include: (a) the contractual terms and conditions compared with market rates. (b) significant leasehold improvements expected to have significant economic benefit when the option becomes exercisable. (c) the costs relating to the termination of the lease. (d) the importance of the underlying asset to the lessee’s operations; and (e) conditionality associated with exercising the option. 20.42 An entity’s past practice regarding the period for which it has typically used similar assets may provide information that is helpful in assessing whether the lessee is reasonably certain to exercise or not to exercise an option. 20.43 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.
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 there is not an economic incentive to continue the lease, 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:
(FRS 102: Section 20.38-43):
20.38 An entity shall determine the lease term as the aggregate of: (a) the non-cancellable period of a lease; (b) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and (c) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. If only the lessor has the right to terminate the lease, the non-cancellable period of the lease includes the period covered by the lessor’s option to terminate the lease. 20.39 In assessing the length of the non-cancellable period of a lease, an entity shall 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. 20.40 At the commencement date, an entity (whether the lessee or the lessor) 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. As a result of paragraph 20.38, when a lessee is able to choose between a shorter or a longer period, the lease term shall be the shorter period unless the lessee is reasonably certain to choose the longer period. 20.41 Factors to consider in the assessment of whether an option in a lease is reasonably certain to be exercised include: (a) the contractual terms and conditions compared with market rates. (b) significant leasehold improvements expected to have significant economic benefit when the option becomes exercisable. (c) the costs relating to the termination of the lease. (d) the importance of the underlying asset to the lessee’s operations; and (e) conditionality associated with exercising the option. 20.42 An entity’s past practice regarding the period for which it has typically used similar assets may provide information that is helpful in assessing whether the lessee is reasonably certain to exercise or not to exercise an option. 20.43 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.
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 depreciated over the ROU Asset Life.
The software uses a full month convention, depreciating 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)
Depreciation Expense over Term: CU12,000 Year-Month Depreciation Expense when ROU Asset Life = 12 (Default) Depreciation 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/Section 16 – Investment Property
Technical Guidance:
(FRS 102: Section 20.58):
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. (FRS 102: Appendix I Glossary):
Right of Use Asset: An asset that represents a lessee’s right to use an underlying asset for the lease term. Useful Life: 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 the asset by an entity. (FRS 102: Section 16.6-7):
16.6 An investment property held by a lessee as a right-of-use asset shall be measured initially at its cost in accordance with Section 20. 16.7 An investment property shall be measured at fair value at each reporting date with changes in fair value recognised in profit or loss. When a lessee uses the fair value model to measure an investment property that is held as a right-of-use asset, it shall measure the right-of-use asset, and not the underlying property, at fair value. Section 2A provides guidance on determining fair value
Designation for Footnote Disclosure:
Summary Guidance: Designation for Footnote Disclosure selection enables the correct presentation of the ROU Asset & Accumulated Depreciation roll forward sections in the Footnote Disclosure. This is a new requirement under the FRS 102 Section 20 Leases (amended September 2024), which is effective for fiscal years beginning on or after 1 January 2026.
Displays when: Initial Application Date and Start Date are equal and the Start Date for the Financial Period is within the range of 1 January 2026 to 31 December 2026
Displays when: Initial Application Date and Start Date are equal and the Start Date for the Financial Period is within the range of 1 January 2026 to 31 December 2026
Add lease from acquisition (business combination)*
Displays for all leases
New lease (not previously accounted for)
Displays for all leases
Migrate lease from spreadsheet or another software
Displays when: Initial Application Date and Start Date are equal and the dates are 1 January 2027 or thereafter
(FRS 102: Section 20.81):
A lessee shall disclose the following amounts for the reporting period for right-of-use assets, by class of underlying asset: (a) the gross carrying amount and the accumulated depreciation at the beginning and end of the reporting period; and (b) a reconciliation of the carrying amount at the beginning and end of the reporting period showing separately:
(i) additions;
(ii) disposals;
(iii) acquisitions through business combinations;
(iv) revaluations;
(v) impairment losses recognised or reversed in profit or loss in accordance with Section 27;
(vi) depreciation; and
(vii) other changes.
This reconciliation need not be presented for prior periods. (FRS 102: Section 1.54):
If a lessee previously recognised an asset or a liability relating to favourable or unfavourable terms of an operating lease acquired as part of a business combination, the lessee shall derecognise that asset or liability and adjust the carrying amount of the right-of-use asset by a corresponding amount at the date of initial application.
Discount Rate:
Summary Guidance: The Discount Rate (interest 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 Lessee determines the discount rate on a lease-by-lease basis to be either:
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); or
Obtainable borrowing rate (i.e., what the Lessee can borrow over a similar term, an amount similar to the total undiscounted value of lease payments)
A public benefit entity that is unable readily to determine either the interest rate implicit in the lease, or the Lessee’s incremental or obtainable borrowing rate for a lease, shall use the rate of interest otherwise obtainable by the public benefit entity on deposits held with financial institutions.
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 FRS Calculator)
Note: The PV of Lease Payments is a different calculation than the sum of Total Payments. 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:
(FRS 102: Section 20.49-PBE 20.50):
20.49 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 choose, on a lease-by-lease basis, to apply either the lessee’s incremental borrowing rate or the lessee’s obtainable borrowing rate. PBE 20.50 A public benefit entity that is unable readily to determine either the interest rate implicit in the lease, or the lessee’s incremental or obtainable borrowing rate for a lease, shall use the rate of interest otherwise obtainable by the public benefit entity on deposits held with financial institutions. (FRS 102: Section 20.66-69):
20.66 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 20.43 to 20.44. 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 20.43 to 20.44 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. 20.67 In applying paragraph 20.66, 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 cannot be readily determined, the lessee shall use either the lessee’s incremental borrowing rate or the lessee’s obtainable borrowing rate at the date of reassessment. When applicable, a public benefit entity shall apply paragraph PBE20.50. 20.68 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; or (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. 20.69 In applying paragraph 20.68, 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. (FRS 102: Appendix I Glossary):
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. Lessee’s incremental borrowing rate: The rate of interest 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. Lessee’s obtainable borrowing rate: The rate of interest a lessee would have to pay to borrow, over a similar term, an amount similar to the total undiscounted value of lease payments to be included in the measurement of the lease liability.
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 section of the software.
Technical Guidance:
(FRS 102: Appendix I Glossary):
Lease incentives: Payments made by a lessor to a lessee associated with a lease, or the reimbursement or assumption by a lessor of costs of a lessee. (FRS 102: Section 20.47):
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 20.49; (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; (d) any amount recognised in accordance with Section 21 Provisions and Contingencies at the commencement date as 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; and (e) any amount recognised at the commencement date in accordance with Section 24 or, for a public benefit entity, paragraphs PBE34.64 to PBE34.74, when a lease component contains a government grant or non-exchange transaction as described in paragraph 20.35. (FRS 102: Section 20.51):
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 lease payments as described in paragraph 20.52), 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 paragraphs 20.53 and 20.54); (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 20.41 to 20.44); and (e) payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
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:
(FRS 102: Appendix I Glossary):
Lease incentives: Payments made by a lessor to a lessee associated with a lease, 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:
(FRS102: Appendix I Glossary):
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. (FRS 102: Section 20.47):
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 20.49; (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; (d) any amount recognised in accordance with Section 21 Provisions and Contingencies at the commencement date as 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; and (e) any amount recognised at the commencement date in accordance with Section 24 or, for a public benefit entity, paragraphs PBE34.64 to PBE34.74, when a lease component contains a government grant or non-exchange transaction as described in paragraph 20.35. (FRS 102: Section 20.95):
Initial direct costs, other than those incurred by manufacturer or dealer lessors, are included in the initial measurement of the net investment in the lease and reduce the amount of income recognised over the lease term. The interest rate implicit in the lease is defined in such a way that the initial direct costs are included automatically in the net investment in the lease; there is no need to add them separately. (FRS 102: Section 20.108):
A lessor shall add initial direct costs incurred in obtaining an operating lease to the carrying amount of the underlying asset and recognise those costs as an expense over the lease term on the same basis as the lease income.
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 expected 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, 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, 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:
(FRS 102: Section 20.51-53):
20.51 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 lease payments as described in paragraph 20.52), 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 paragraphs 20.53 and 20.54); (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 20.41 to 20.44); and (e) payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease. 20.52 In-substance fixed lease payments are payments that may, in form, contain variability, but that, in substance, are unavoidable. Such payments exist, for example, if: (a) there is no genuine variability, for example (i) payments that must be made only if an asset is proven to be capable of operating during the lease, or only if an event occurs that has no genuine possibility of not occurring; or (ii) payments that are initially structured as variable lease payments linked to the use of the underlying asset but for which the variability will be resolved at some point after the commencement date so that the payments become fixed for the remainder of the lease term. Those payments become in-substance fixed payments when the variability is resolved; (b) there is more than one set of payments that could be made, but only one of these sets is realistic; or (c) there is more than one realistic set of payments that could be made, but one of these sets must be paid. In this case, the set of payments with the lowest discounted amount shall be selected. 20.53 Variable lease payments that depend on an index or a rate described in paragraph 20.51 include, for example, payments linked to a consumer price index, payments linked to a benchmark interest rate or payments that vary to reflect changes in market rents. (FRS 102: Appendix I Glossary):
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. The update to Section 20 of FRS 102 in September 2024 was based on IFRS 16 but was not as detailed with regards to Variable Payments and Non-lease components. Refer to IFRS 16 Paragraphs 12-16, 53(d), BC135-137, BC163.
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 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.
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, 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, 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 arears. Residual Value Guarantee by Lessee of CU150 at end of lease term. Furthermore, actual amount paid as a Residual Value Guarantee was CU120. Initial: Yr1 - CU100 Yr2 - CU100 Yr3 - CU100 + CU150 Revised at end of term: Yr3 - CU120
Technical Guidance:
(FRS 102: Section 20.36):
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 23.65 to 23.77. The update to Section 20 of FRS 102 in September 2024 was based on IFRS 16 but was not as detailed with regards to Variable Receipts and Non lease components. Refer to IFRS 16 Paragraphs 12-17 and BC135-136. 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. (FRS 102: Appendix I Glossary):
Lease Payment:
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:
Summary Guidance: Guarantees 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 expected 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:
(FRS 102: Appendix I Glossary) :
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. Lease Payment:
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.
Classification:
Summary Guidance: There is only one classification for Lessees but two classifications for Lessors.
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:
(FRS 102: Section 20.87-91):
20.87 A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset. 20.88 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. 20.89 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 (eg in the form of a rent rebate equalling 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. 20.90 The examples and indicators in paragraphs 20.88 and 20.89 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. 20.91 Lease classification is made at the inception date and is reassessed only if there is a lease modification. Changes in estimates (eg changes in estimates of the economic life or of the residual value of the underlying asset), or changes in circumstances (e.g., default by the lessee), do not give rise to a new classification of a lease for accounting purposes.
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.
Variable Lease Expense is a required footnote disclosure. While including this information in the software is optional, it is recommended for ease in populating your footnote 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 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 Variable Lease 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, 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, 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 includes a payment related to maintenance of an office lease.
Technical Guidance:
(FRS 102: Section 20.30):
Amounts payable by the lessee under a contract for activities or costs that do not transfer a good or service to the lessee do not give rise to a separate component but form part of the total consideration to be allocated to the components of the contract. (FRS 102: Section 20.33-34):
20.33 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. 20.34 Unless the practical expedient in paragraph 20.33 is applied, a lessee shall account for non-lease components by applying other sections of this FRS. (FRS 102: Section 20.51):
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 lease payments as described in paragraph 20.52), 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 paragraphs 20.53 and 20.54); (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 20.41 to 20.44); and (e) payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease (FRS 102: Section 20.64):
20.64 After the commencement date, a lessee shall recognise in profit or loss, unless the costs are included in the carrying amount of another asset applying other applicable sections of this FRS, both:
(a) interest on the lease liability; and
(b) variable lease payments not included in the measurement of the lease liability in the period in which the event or condition that triggers those payments occurs. (FRS 102: Section 20.68):
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; or (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.
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 footnote disclosure.
The different types of variable lease receipts, and the accounting treatment for each are summarized below.
Types of Variable Lease Receipts
Lease Receipts
Variable Lease Revenue (period expense)
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
Receipts 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 Variable Lease 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, 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, 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
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 maintenance of an office lease.
Technical Guidance:
(FRS 102: Section 20.36):
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 23.65 to 23.77. The update to Section 20 of FRS 102 in September 2024 was based on IFRS 16 but was not as detailed with regards to Variable Receipts and Non lease components. Refer to IFRS 16 Paragraphs 17, BC135-136.
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:
(FRS 102: Section 20.38-43):
20.38 An entity shall determine the lease term as the aggregate of: (a) the non-cancellable period of a lease; (b) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and (c) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. If only the lessor has the right to terminate the lease, the non-cancellable period of the lease includes the period covered by the lessor’s option to terminate the lease. 20.39 In assessing the length of the non-cancellable period of a lease, an entity shall 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. 20.40 At the commencement date, an entity (whether the lessee or the lessor) 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. As a result of paragraph 20.38, when a lessee is able to choose between a shorter or a longer period, the lease term shall be the shorter period unless the lessee is reasonably certain to choose the longer period. 20.41 Factors to consider in the assessment of whether an option in a lease is reasonably certain to be exercised include: (a) the contractual terms and conditions compared with market rates; (b) significant leasehold improvements expected to have significant economic benefit when the option becomes exercisable; (c) the costs relating to the termination of the lease; (d) the importance of the underlying asset to the lessee’s operations; and (e) conditionality associated with exercising the option. 20.42 An entity’s past practice regarding the period for which it has typically used similar assets may provide information that is helpful in assessing whether the lessee is reasonably certain to exercise, or not to exercise, an option. 20.43 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.
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:
(FRS 102: Section 20.40-43):
20.40 At the commencement date, an entity (whether the lessee or the lessor) 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. As a result of paragraph 20.38, when a lessee is able to choose between a shorter or a longer period, the lease term shall be the shorter period unless the lessee is reasonably certain to choose the longer period. 20.41 Factors to consider in the assessment of whether an option in a lease is reasonably certain to be exercised include: (a) the contractual terms and conditions compared with market rates; (b) significant leasehold improvements expected to have significant economic benefit when the option becomes exercisable; (c) the costs relating to the termination of the lease; (d) the importance of the underlying asset to the lessee’s operations; and (e) conditionality associated with exercising the option. 20.42 An entity’s past practice regarding the period for which it has typically used similar assets may provide information that is helpful in assessing whether the lessee is reasonably certain to exercise, or not to exercise, an option. 20.43 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.
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 the GL Accounts tab. Partial Termination: 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 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 they wouldn't) Lessee elects to not to exercise an option (when previously determined they 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., SONIA). 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 then select Modify terms or payments and fill in required fields) Create an Impairment revision, one month following previous revision (click Edit then select 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 the same as 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: Click Edit then select Derecognize ROU Asset, Enter the Revision Date and select Save and Continue On Description & Term tab, Input ROU Asset Life = 0, which causes the value of the ROU Asset to be transferred to a Gain/Loss Account. Reverse the Gain/Loss Account as part of the initial entry as 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, and Cost Centers) in the middle of the lease, allowing the Lessee to report on that lease differently from the date of the Revision. Section 16 – Investment Property
A Lessee that has applied the fair value model in Section 16 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 then select 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) Modification | Change lease term or timing/value of lease payments (including Full termination) Update Modification | Partial Termination Update Remeasurement | Contingency resolved variable to fixed S Remeasurement | Reassessment of options: exercise of termination, renewal, or purchase option(s) Update Remeasurement | Change in amounts probable under Residual Value Guarantees S Remeasurement | Change in payments due to a change in an index S Remeasurement | Change in payments due to payments tied to a floating interest rate Update Impairment of ROU Asset S Derecognize ROU Asset under certain subleases S Qualitative Lease Information: change lease data in the middle of the lease (e.g, location, GL accounts) S *Modifications that meet the definition of 20.72 allow the Lessee to use the Discount Rate from the previous revision. (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: (Section 20.66 - 20.69, 20.72) Technical Guidance: The technical guidance for all types of Revisions is too extensive to restate, but the main provisions are referenced below: Modifications/Remeasurements: (Sections 20.43, 20.44, 20.62, 20.65 to 20.68a, 20.70 to 20.73)
Impairment: (Sections 20.72b, 20.73a)
Change in Index/Change in Interest Rate: (Sections 20.68b, 20.69)
Derecognize ROU Asset under certain subleases: (Section 20.92) The update to Section 20 of FRS 102 in September 2024 was based on IFRS 16 but was not as detailed with regards to ROU Asset Derecognition. Because section 20.92 is identical to IFRS Section BC 233, it is reasonable to assume the ROU Asset Derecognition explanation in IFRS Section BC 233 & Illustrative Example 20 is also applicable to FRS 102. The update to Section 20 of FRS 102 in September 2024 was based on IFRS 16 but was not as detailed with regards to Revisions. Refer to IFRS 16 Paragraphs 44-46.
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 the 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 they wouldn't) Lessee elects to not to exercise an option (when previously determined they would) 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 if tied to a floating interest rate (e.g., SONIA) 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, and Cost Centers) in the middle of the lease, allowing the lessor to report on that lease differently from the date of the Revision. 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 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 receipts (including Full Termination) Update Update Remeasurement | Reassessment of options: exercise of termination, renewal, or purchase option(s) 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. One interpretation is to follow technical guidance for Classification (Section 20.91). (2) Discount Rate: (Section 20.112 for a Modification). 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 (Section 20.91). Technical Guidance:
(FRS 102: Appendix I Glossary):
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 (e.g., adding or terminating the right to use one or more underlying assets, or extending or shortening the contractual lease term). (FRS 102: Section 20.91):
Lease classification is made at the inception date and is reassessed only if there is a lease modification. Changes in estimates (e.g., changes in estimates of the economic life or of the residual value of the underlying asset), or changes in circumstances (e.g., default by the Lessee), do not give rise to a new classification of a lease for accounting purposes. (FRS 102: Section 20.112):
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 payments for the new lease. The update to Section 20 of FRS 102 in September 2024 was based on IFRS 16 but was not as detailed with regards to Revisions. Refer to IFRS 16 Paragraphs 79-80, 87.
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 then select 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 at the Revision Information Tab.
Technical Guidance:
(FRS 102: Section 20.73 (a)):
For a lease modification that is not accounted for as a separate lease, having remeasured the lease liability in accordance with paragraph 20.71, a lessee shall:
(a) for lease modifications that decrease the scope of the lease, recognise a proportionate reduction in the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease, account for any incoming resources from a government grant or non-exchange transaction (as described in paragraph 20.35) in the modified lease, and recognise any resulting gain or loss in profit or loss.