Example:  Company with 1 prior period presented.

Open

(FASB: 842-10-65-1):
The following represents the transition and effective date information related to Accounting Standards Update No. 2016-02, Leases (Topic 842):
a. A public business entity, a not-for-profit entity that has issued or is a conduit bond obligor for securities that are traded, listed, or quoted on an exchange or an over-the-counter market (with an exception for those 8 entities that have not yet issued their financial statements or made financial statements available for issuance as described in the following sentence), and an employee benefit plan that files or furnishes financial statements with or to the U.S. Securities and Exchange Commission shall apply the pending content that links to this paragraph for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. A not-for-profit entity that has issued or is a conduit bond obligor for securities that are traded, listed, or quoted on an exchange or an over-the-counter market that has not yet issued financial statements or made financial statements available for issuance as of June 3, 2020, shall apply the pending content that links to this paragraph for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Earlier application is permitted.

b. All other entities shall apply the pending content that links to this paragraph for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Earlier application is permitted.

c. In the financial statements in which an entity first applies the pending content that links to this paragraph, the entity shall recognize and measure leases within the scope of the pending content that links to this paragraph that exist at the application date, as determined by the transition method that the entity elects. An entity shall apply the pending content that links to this paragraph using one of the following two methods:

1. Retrospectively to each prior reporting period presented in the financial statements with the cumulative effect of initially applying the pending content that links to this paragraph recognized at the beginning of the earliest comparative period presented, subject to the guidance in (d) through (gg). Under this transition method, the application date shall be the later of the beginning of the earliest period presented in the financial statements and the commencement date of the lease.

2. Retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment, subject to the guidance in (d) through (gg). Under this transition method, the application date shall be the beginning of the reporting period in which the entity first applies the pending content that links to this paragraph.

(IFRS 16: Paragraph C1):
An entity shall apply this Standard for annual reporting periods beginning on or after 1 January 2019.

(IFRS 16: Paragraph C5):
A lessee shall apply this Standard to its leases either:
a. retrospectively to each prior reporting period presented applying IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors; or
b. retrospectively with the cumulative effect of initially applying the Standard recognised at the date of initial application in accordance with paragraphs C7–C13.

(FASB: 830-10-45-2):
The assets, liabilities, and operations of a foreign entity shall be measured using the functional currency of that entity. An entity’s functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment in which an entity primarily generates and expends cash. 

(IAS 21: Paragraph 8):
Functional currency is the currency of the primary economic environment in which the entity operates.

Upon initial application of the standard, assume you have entered (on Add Lease screen) the following existing balance sheet balances under the previous lease accounting guidance (ASC 840/IAS 17):

Deferred Rent Long-Term Asset (GL#500)                             $1,000
Deferred Rent Short-Term Asset (GL#505)                            $2,000

Upon initial application, the opening entry will remove your existing balances under previous lease accounting guidance with an offset to the ROU Asset:

Dr. ROU Asset (GL#110)                                                        $50,000*
            Cr. Lease Liability (GL#120)                                                               $50,000
Dr. ROU Asset (GL#110)                                                        $3,000*
            Cr. Deferred Rent Long-Term Asset (GL#500)                                   $1,000
            Cr. Deferred Rent Short-Term Asset (GL#505)                                  $2,000

*In this example, the ROU Asset is calculated to be $50,000 under the new lease accounting guidance.  An additional $3,000 of ROU Asset is recognized in the journal entry to remove the balances under previous lease accounting guidance.

 Upon initial application of the standard, assume you have entered (on Add Lease screen) the following existing balance sheet balances under the previous lease accounting guidance (ASC 840/IAS 17):

Capital Lease Asset (GL#600)                                                $48,000
Capital Lease Liability (GL#605)                                             $50,000

Upon initial application, the opening entry will remove your existing balances under previous lease accounting guidance with an offset to ROU Asset:

Dr. ROU Asset (GL#210)                                                        $50,000*
            Cr. Lease Liability (GL#220)                                                               $50,000
Dr. Capital Lease Liability (GL#600)                                       $50,000
            Cr. ROU Asset (GL#210)                                                                    $2,000*
            Cr. Capital Lease Asset (GL#605)                                                      $48,000

• In this example, the ROU Asset is calculated to be $50,000 under the new lease accounting guidance.  The ROU Asset is reduced by $2,000 in the journal entry to remove the balances under the previous lease accounting guidance.

1. Suspense Account for Transferring Balances  This GL Account is used:

   1. For all revisions: When a revision is complete, we will freeze the old version of this lease. The final journal entry for the old version will zero out the balance sheet accounts (ROU Asset & Lease Liability), which will be reversed in first entry of the revision.

      1. We will use a Suspense Account in the event the balance sheet accounts do not offset (Lessee example: ROU Asset does not equal the Lease Liability).

      2. We will reverse the final journal entry for the old version in the first entry of the latest revision to establish the balance sheet accounts.  

2. Gain/Loss Account:  This GL Account is used if:

   1. Your revision start date and end date are in the same month (i.e., terminating the lease). The difference between your ROU Asset and Lease Liability (if any) will be recorded in a Gain/Loss Account. (FASB: 842-20-40-1/IFRS 16: Paragraph 46(a)).

   2. If your revision’s adjustment of the Liability causes the carrying amount of the ROU Asset to be reduced to $0, then any remaining amount will be recorded in a Gain/Loss Account.  (FASB: 842-20-35-4/IFRS 16: Paragraph 46(a))

   3. If your revision is an Impairment, the reduction of the ROU Asset is recorded in a Gain/Loss Account. (FASB: 842-20-35-9/IFRS 16: Paragraph 33)

   4. For a revision to “Derecognize ROU Asset under certain subleases:” The ROU Asset is reduced to $0 with the value of the ROU Asset transferred to a Gain/Loss Account, which you will reverse in the initial entry as a Lessor of the subleased asset.   (FASB: 842-20-35-14/IFRS 16: BC233)

1. Suspense Account for Transferring Balances  This GL Account is used:

   1. For all revisions: When a revision is complete, we will freeze the old version of this lease. The final journal entry for the old version will zero out the balance sheet accounts (Deferred Rent Asset, Deferred Rent Liability, Initial Direct Cost Asset), which will be reversed in first entry of the revision.

      1. We will use a Suspense Account in the event the balance sheet accounts do not offset.

      2. We will reverse the final journal entry for the old version in the first entry of the latest revision to establish the balance sheet accounts.  

2. Gain/Loss Account:  This GL Account is used if:

   1. Your revision start date and end date are in the same month (i.e., terminating the lease). The difference between your Deferred Rent Asset, Deferred Rent Liability and the Initial Direct Cost Asset will be recorded in a Gain/Loss Account.

(FASB: 842-20-55-10):
The right-of-use asset is a nonmonetary asset while the lease liability is a monetary liability. Therefore, in accordance with Subtopic 830-10 on foreign currency matters, when accounting for a lease that is denominated in a foreign currency, if remeasurement into the lessee’s functional currency is required, the lease liability is remeasured using the current exchange rate, while the right-of-use asset is remeasured using the exchange rate as of the commencement date.

(FASB: 830-30-45-3):
Translation Using Current Exchange Rate
All elements of financial statements shall be translated by using a current exchange rate as follows:
a. For assets and liabilities, the exchange rate at the balance sheet date shall be used.
b. For revenues, expenses, gains, and losses, the exchange rate at the dates on which those elements are recognized shall be used.

(FASB: 830-10-55-10 to 11):
Use of Averages or Other Methods of Approximation 
55-10 Literal application of the standards in this Subtopic might require a degree of detail in record keeping and computations that could be burdensome as well as unnecessary to produce reasonable approximations of the results. Accordingly, it is acceptable to use averages or other methods of approximation. For example, because translation at the exchange rates at the dates the numerous revenues, expenses, gains, and losses are recognized is generally impractical, an appropriately weighted average exchange rate for the period may be used to translate those elements. Likewise, the use of other time- and effort-saving methods to approximate the results of detailed calculations is permitted.

55-11 Average rates used shall be appropriately weighted by the volume of functional currency transactions occurring during the accounting period. For example, to translate revenue and expense accounts for an annual period, individual revenue and expense accounts for each quarter or month may be translated at that quarter's or that month's average rate. The translated amounts for each quarter or month should then be combined for the annual totals.

(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.

(IAS 21: Paragraph 39):
The results and financial position of an entity whose functional currency is not the currency of a hyperinflationary economy shall be translated into a different presentation currency using the following procedures:
(a) assets and liabilities for each statement of financial position presented (ie including comparatives) shall be translated at the closing rate at the date of that statement of financial position;
(b) income and expenses for each statement presenting profit or loss and other comprehensive income (ie including comparatives) shall be translated at exchange rates at the dates of the transactions; and
(c) all resulting exchange differences shall be recognised in other comprehensive income.

(IAS 21: Paragraph 40):
For practical reasons, a rate that approximates the exchange rates at the dates of the transactions, for example an average rate for the period, is often used to translate income and expense items. However, if exchange rates fluctuate significantly, the use of the average rate for a period is inappropriate.

(FASB: 842-20-55-10):
The right-of-use asset is a nonmonetary asset while the lease liability is a monetary liability. Therefore, in accordance with Subtopic 830-10 on foreign currency matters, when accounting for a lease that is denominated in a foreign currency, if remeasurement into the lessee’s functional currency is required, the lease liability is remeasured using the current exchange rate, while the right-of-use asset is remeasured using the exchange rate as of the commencement date.

(FASB: 830-30-45-3):
Translation Using Current Exchange Rate
All elements of financial statements shall be translated by using a current exchange rate as follows:
a. For assets and liabilities, the exchange rate at the balance sheet date shall be used.
b. For revenues, expenses, gains, and losses, the exchange rate at the dates on which those elements are recognized shall be used.

(FASB: 830-10-55-10 to 11):
Use of Averages or Other Methods of Approximation 
55-10 Literal application of the standards in this Subtopic might require a degree of detail in record keeping and computations that could be burdensome as well as unnecessary to produce reasonable approximations of the results. Accordingly, it is acceptable to use averages or other methods of approximation. For example, because translation at the exchange rates at the dates the numerous revenues, expenses, gains, and losses are recognized is generally impractical, an appropriately weighted average exchange rate for the period may be used to translate those elements. Likewise, the use of other time- and effort-saving methods to approximate the results of detailed calculations is permitted.

55-11 Average rates used shall be appropriately weighted by the volume of functional currency transactions occurring during the accounting period. For example, to translate revenue and expense accounts for an annual period, individual revenue and expense accounts for each quarter or month may be translated at that quarter's or that month's average rate. The translated amounts for each quarter or month should then be combined for the annual totals.

(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.

(IAS 21: Paragraph 39):
The results and financial position of an entity whose functional currency is not the currency of a hyperinflationary economy shall be translated into a different presentation currency using the following procedures:
(a) assets and liabilities for each statement of financial position presented (ie including comparatives) shall be translated at the closing rate at the date of that statement of financial position;
(b) income and expenses for each statement presenting profit or loss and other comprehensive income (ie including comparatives) shall be translated at exchange rates at the dates of the transactions; and
(c) all resulting exchange differences shall be recognised in other comprehensive income.

(IAS 21: Paragraph 40):
For practical reasons, a rate that approximates the exchange rates at the dates of the transactions, for example an average rate for the period, is often used to translate income and expense items. However, if exchange rates fluctuate significantly, the use of the average rate for a period is inappropriate.

(FASB: 842-20-55-10):
The right-of-use asset is a nonmonetary asset while the lease liability is a monetary liability. Therefore, in accordance with Subtopic 830-10 on foreign currency matters, when accounting for a lease that is denominated in a foreign currency, if remeasurement into the lessee’s functional currency is required, the lease liability is remeasured using the current exchange rate, while the right-of-use asset is remeasured using the exchange rate as of the commencement date.

(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.

(FASB: 842-10-65-1(c)):
Commencement Date is the date on which a lessor makes an underlying asset available for use by a lessee.

c. In the financial statements in which an entity first applies the pending content that links to this paragraph, the entity shall recognize and measure leases within the scope of the pending content that links to this paragraph that exist at the application date, as determined by the transition method that the entity elects.

See definition of Initial Application Date above.

(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.

See definition of Initial Application Date above.

(FASB: 842-10-30-1):
Lease Term is the noncancellable period for which a lessee has the right to use an underlying asset, together with all of the following:

a. Periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option
b. Periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option (i.e., bypassing an early termination option)
c. Periods covered by an option to extend (or not to terminate) the lease in which exercise of the option is controlled by the lessor.

(FASB: 842-10-30-2):
At the commencement date, an entity shall include the periods described in paragraph 842-10-30-1 in the lease term having considered all relevant factors that create an economic incentive for the lessee (that is, contract-based, asset-based, entity-based, and market-based factors). Those factors shall be considered together, and the existence of any one factor does not necessarily signify that a lessee is reasonably certain to exercise or not to exercise an option.

(FASB: 842-10-30-3):
At the commencement date, an entity shall assess an option to purchase the underlying asset on the same basis as an option to extend or not to terminate a lease, as described in paragraph 842-10-30-2.

(FASB: 842-10-30-4):
See paragraphs 842-10-55-19 through 55-21 for implementation guidance on commencement date and paragraphs 842-10-55-23 through 55-27 for implementation guidance on lease term and purchase options. See Examples 23 through 24 (paragraphs 842-10-55-210 through 55-224) for illustrations of the requirements on purchase options.

(FASB: 842-10-55-23):
An entity should determine the noncancellable period of a lease when determining the lease term. When assessing the length of the noncancellable period of a lease, an entity should apply the definition of a contract and determine the period for which the contract is enforceable. A lease is no longer enforceable when both the lessee and the lessor each have the right to terminate the lease without permission from the other party with no more than an insignificant penalty.

(IFRS 16: Paragraph 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.

(IFRS 16: Paragraph 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.

(IFRS 16: Paragraph 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.

(FASB: 842-10-30-1):
Lease Term is the noncancellable period for which a lessee has the right to use an underlying asset, together with all of the following:

a. Periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option
b. Periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option (i.e., bypassing an early termination option)
c. Periods covered by an option to extend (or not to terminate) the lease in which exercise of the option is controlled by the lessor.

(FASB: 842-10-30-2):
At the commencement date, an entity shall include the periods described in paragraph 842-10-30-1 in the lease term having considered all relevant factors that create an economic incentive for the lessee (that is, contract-based, asset-based, entity-based, and market-based factors). Those factors shall be considered together, and the existence of any one factor does not necessarily signify that a lessee is reasonably certain to exercise or not to exercise an option.

(FASB: 842-10-30-3):
At the commencement date, an entity shall assess an option to purchase the underlying asset on the same basis as an option to extend or not to terminate a lease, as described in paragraph 842-10-30-2.

(FASB: 842-10-30-4):
See paragraphs 842-10-55-19 through 55-21 for implementation guidance on commencement date and paragraphs 842-10-55-23 through 55-27 for implementation guidance on lease term and purchase options. See Examples 23 through 24 (paragraphs 842-10-55-210 through 55-224) for illustrations of the requirements on purchase options.

(FASB: 842-10-55-23): An entity should determine the noncancellable period of a lease when determining the lease term. When assessing the length of the noncancellable period of a lease, an entity should apply the definition of a contract and determine the period for which the contract is enforceable. A lease is no longer enforceable when both the lessee and the lessor each have the right to terminate the lease without permission from the other party with no more than an insignificant penalty.

(IFRS 16: Paragraph 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.

(IFRS 16: Paragraph 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.

(IFRS 16: Paragraph 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.

Start Date: 1/5/2023
End Date: 1/4/2024
Term: 13 Months
ROU Asset Life: 12 Months (Defaults to Term -1)
Amortization Expense over Term: $12,000

(FASB: 842-20-35-8):
A lessee shall amortize the right-of-use (ROU) asset from the commencement date (Start Date) to the earlier of:

1. The end of the useful life (defined below) of the right-of-use asset; or

2. The end of the Lease Term.

However, if the lease transfers ownership of the underlying asset to the lessee or the lessee is reasonably certain to exercise an option to purchase the underlying asset, the lessee shall amortize the right-of use asset to the end of the useful life of the underlying asset.

(FASB 842: Glossary, Page 101):
Useful life means the period over which an asset is expected to contribute directly or indirectly to future cash flows.

(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:

1. an asset is expected to be available for use by an entity; or

2. the number of production or similar units expected to be obtained from an asset by an entity.

(FASB: 842-20-30-2): 
The discount rate for the lease initially used to determine the present value of the Lease Payments for a lessee is calculated on the basis of information available at the commencement date.

(FASB: 842-20-30-3):
A lessee should use the rate implicit in the lease whenever that rate is readily determinable. If the rate implicit in the lease is not readily determinable, a lessee uses its incremental borrowing rate. (FASB: 842 Only, Not Allowed under IFRS 16): A lessee that is not a public business entity is permitted to use a risk-free discount rate for the lease instead of its incremental borrowing rate, determined using a period comparable with that of the lease term, as an accounting policy election made by class of underlying asset.

(FASB: 842-20-35-5):
If there is a remeasurement of the lease liability in accordance with paragraph 842-20-35-4, the lessee shall update the discount rate for the lease at the date of remeasurement on the basis of the remaining lease term and the remaining lease payments unless the remeasurement of the lease liability is the result of one of the following:

a. A change in the lease term or the assessment of whether the lessee will exercise an option to purchase the underlying asset and the discount rate for the lease already reflects that the lessee has an option to extend or terminate the lease or to purchase the underlying asset.

b. A change in amounts probable of being owed by the lessee under a residual value guarantee (see paragraph 842-10-35-4(c)(3)).

c. A change in the lease payments resulting from the resolution of a contingency upon which some or all of the variable lease payments that will be paid over the remainder of the lease term are based (see paragraph 842-10-35-4(b)).

(FASB 842: Glossary)
Fair Value: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Incremental borrowing rate: The rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the Lease Payments in a similar economic environment.

Rate Implicit in the Lease:  The rate of interest that, at a given date, causes the aggregate present value of (a) the lease payments and (b) the amount that a lessor expects to derive from the underlying asset following the end of the lease term to equal the sum of (1) the fair value of the underlying asset minus any related investment tax credit retained and expected to be realized by the lessor and (2) any deferred initial direct costs of the lessor. However, if the rate determined in accordance with the preceding sentence is less than zero, a rate implicit in the lease of zero shall be used.

(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: Paragraphs 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: Paragraphs 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):
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.

(842-10-55-30):
Lease incentives include both of the following:
a. Payments made to or on behalf of the lessee
b. Losses incurred by the lessor as a result of assuming a lessee’s preexisting lease with a third party. In that circumstance, the lessor and the lessee should independently estimate any loss attributable to that assumption. For example, the lessee’s estimate of the lease incentive could be based on a comparison of the new lease with the market rental rate available for similar underlying assets or the market rental rate from the same lessor without the lease assumption. The lessor should estimate any loss on the basis of the total remaining costs reduced by the expected benefits from the sublease of use of the assumed underlying asset.

(FASB: 842-20-30-5):
The Incentive Received reduces the calculation of the right-of-use asset. At the Start Date, the cost of the right-of-use asset shall consist of all of the following:
a. The amount of the initial measurement of the lease liability
b. Any Lease Payments made to the lessor at or before the commencement date, minus any lease Incentives Received
c. Any Initial Direct Costs incurred by the lessee

(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.

(FASB: 842, Glossary):
Initial direct costs: Incremental costs of a lease that would not have been incurred if the lease had not been obtained.

(FASB: 842-10-30-9):
Initial Direct Costs for a lessee or a lessor may include, for example, either of the following:
a. Commissions
b. Payments made to an existing tenant to incentivize that tenant to terminate its lease

(FASB: 842-10-30-10):
Costs to negotiate or arrange a lease that would have been incurred regardless of whether the lease was obtained, such as fixed employee salaries, are not initial direct costs. The following items are examples of costs that are not initial direct costs:
a. General overheads, including, for example, depreciation, occupancy and equipment costs, unsuccessful origination efforts, and idle time
b. Costs related to activities performed by the lessor for advertising, soliciting potential lessees, servicing existing leases, or other ancillary activities
c. Costs related to activities that occur before the lease is obtained, such as costs of obtaining tax or legal advice, negotiating lease terms and conditions, or evaluating a prospective lessee’s financial condition.

(FASB: 842-20-30-5):
The Initial Direct Costs increases the calculation of the right-of-use asset. At the Start Date, the cost of the right-of-use asset shall consist of all of the following:
a. The amount of the initial measurement of the lease liability
b. Any Lease Payments made to the lessor at or before the commencement date, minus any lease Incentives Received
c. Any Initial Direct Costs incurred by the lessee

(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.