Leases Part 3 - Other Accounting Issues
Leases Part 3 - Other Accounting Issues
Leases Part 3 - Other Accounting Issues
Lessee Accounting
- Remeasurement in case of an
extension
- Lease liability in variable
payments
-Lease modification
TAKE NOTE:
1. If the lease modification is brought about by:
- increase of scope of the lease
- the lease is increased equal to the increase of
scope and equivalent to the current market
rental, the modification shall be accounted for as a
separate lease.
2. Other modifications or amendments done in the
lease agreement, which does not qualify in no.1 shall
be treated as an adjustment to the carrying amount
of the right of use asset and lease liability.
EXTENSION OPTION
Note: Remeasurement of lease liability is an adjustment to
the carrying amount of the right of use asset.
Illustration:
An entity entered into a lease of building on January 1, 2020
with the following information:
Annual rental payable at the end of each year --Php 500,000
Lease term: 5 years; Useful life of building: 20 years
Implicit interest rate: 10%
PV of an ordinary annuity of 1 at 10% for 5 periods --- 3.791
The lease contained an option for the lessee to extend for a
further 5 years.
At the date of commencement date, the exercise of the
extension option is not reasonably certain.