Lease modifications: Numbers and journal entries IFRS 16 Leases contains detailed guidance on how to account for lease modifications. Related content. 15 Dec 2020 PDF. This guide was fully updated in October 2020. Filed under: Leases. Company Y uses the IBR at the DIA resulting in an increase to the lease liability of $291,000 from $267,000 to $558,000. Lease modifications may also prompt remeasurement of the lease liability unless they are to be treated as separate leases. $1,100,000: $800,000. Find out more Our Real estate leases – The landlord perspective (PDF 1.4 MB) publication covers key areas of IFRS 16 that are particularly relevant to landlords in real estate leases. This webinar, hosted by KPMG Partner Patricia Stebbens, … lease components (services) from lease components. The International Accounting Standards Board (the Board) has issued amendments . 8 Lease modifications 40. This publication offers guidance on accounting under IFRS 16 for common forms of lease modifications. Some industries were hit harder by the pandemic than others. Q4 2020 Quarterly Outlook. Y% Difference: Lease liability. KPMG's new publication will help companies understand accounting under IFRS 16 for common forms of lease modifications. Link copied Overview. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. Lease modifications – ten comprehensive examples. We provide detailed Q&As, examples and observations, as well as comparisons to legacy US GAAP, updated for continuing developments in practice. Digital Self-Studies. Meet the IFRS team . Topics Leases. KPMG refers to the global organization or to one or more of the member firms of KPMG International Limited (“KPMG International”), each of which is a separate legal entity. KPMG addresses how to account for rent concessions resulting from these events under ASC 842 as a lessee or a lessor. Lessees and lessors receiving rent concessions resulting from coronavirus (COVID-19), the civil unrest in Hong Kong and other unforeseen events. Secondly, the length of the lease term determines whether a lease qualifies for the short-term lease exemption. If the lessee decides to apply this exemption each lease component and any associated non-lease component is accounted for as a single lease component. Relevant dates. 2020 AICPA Conference on Current SEC & PCAOB Developments . Modifications is a particular area which has raised issues and the devil is in the detail. This edition of . * Apply coupon code COMBO200 at checkout to receive $200 off the combined purchase price. 10.1 Data extraction challenges 49 10.2 Key transition decisions for tenants 50 10.3 Sale-and-leaseback on transition 53. IAS 17 prescribes the accounting policies and disclosures applicable to leases, both for lessees and lessors. Finally, IFRS 16 contains additional application guidance on how to deal with periods covered by options to extend or terminate a lease. However, KPMG has put together practical guidance and examples to help lessors account for rent concessions treated as lease modifications in our publication Leases – Rent concessions. IFRS Newsletter: Leases. Finance leases: initial recognition and measurement Summary of the initial recognition and measurement. We are releasing our in-depth application guidance on IFRS 16 Leases in manageable chunks, one chapter at a time. 8.1 Increase in leased space – Adding a floor 40 8.2 Increase in lease term 41 8.3 Reduction in rent 43 8.4 Compensation for inconvenience 45. A lease modification (as considered in this document – does not address changes in the leased asset, such as decreases in leased space) arises when the lease contract is altered such that future cash flows and/or the scope of the lease changes. to IFRS 16 to simplify how lessees account for rent concessions. At the effective date of the modification, the lease liability is remeasured to include the lease payments for the extended period (2020 to 2025). IASB ® Board project Phase I: pre-IBOR reform issues. The accounting for lease modifications can be complex. Guidance for lessors remains substantially unchanged from IAS 17. 15 mins; Online tutorial; In this topic we be look at the lease modifications for lessees. Under the new standard, other accounting changes include accounting for sub-leases, lease modifications, and sale and leaseback arrangements. View all. Lease modifications 10 Final thoughts 11 Contents . CPE seminars … By the end of this module you will be able to determine what is a lease modification, identify whether a modification is a separate lease or whether it is an adjustment to an existing lease and apply lease modification accounting. All other lease modifications. From the reference library. While IFRS 16 is not a large standard in terms of pages when compared to other more recent standards, it is a standard that is raising many practical and interpretational issues. To support the new recognition and measurement requirements, changes to information technology systems and data gathering processes may be required. Subject AccountingLink. Subscribe to our IFRS Perspectives Newsletter . According to IFRS 16, lease modification is a change in either scope or payments for the lease that was not part of the original conditions. provides an overview of the IASB discussions of the leases project in October 2015. Volume Discount! Subscribe. PwC’s Leases guide is a comprehensive resource for lessees and lessors to account for leases under the new leases standard (ASC 842). I teach accounting for the lease modifications in the IFRS Kit and believe me, it is not an easy thing, especially if the lessee has many leases. The previous lease accounting model required lessees and lessors to classify their leases as either finance leases or operating leases and account for those two types of leases differently. • Negotiate to add the right to use an additional asset • Negotiate to increase the lease term • Negotiate to terminate the lease • Negotiate to change the consideration Understand the impact of the new leases standard, ASC 842, read KPMG's overviews of the leases guidance. That model was criticised for failing to meet the needs of investors and analysts because it did not always provide a faithful representation of leasing transactions. KPMG reports on the … * For more information, call 201-505-6062 or email us-kpmglearning@kpmg.com. Financial Reporting Developments - Lease accounting - Accounting Standards Codification 842, Leases. Share. The new standard could also impact entities beyond accounting, as discussed on the next … Learn more. PREPARING FOR 2019. Lease modifications for lessees. 9 Sale-and-leaseback 46 10 Transition considerations 49. KPMG’s global IFRS leasing standards leader. Discounts Available for Groups of 3 or More! AASB 16 Leases: Modifications and implementation – Webinar AASB 16 Leases – Modifications and implementation Watch a recording of our webinar held on 23 October 2018 which outlines key implementation considerations for AASB 16. Latest edition: In this handbook, KPMG explains the new leases standard (ASC 842) in detail. A lease modification includes adding or Individuals who register for any 2 KPMG Executive Education virtual seminars can save! KPMG reports on new SEC staff guidance on updating the foreign exchange rate used to remeasure an ROU asset into the lessee’s functional currency. date of the lease modification. [IFRS 16:36(c)] Covid-19-related rent concessions A lessee may elect not to assess whether a COVID-19-related rent concession is a lease modification. Remeasure lease liability using revised discount rate* Remeasure right-of-use asset by same amount ; No P&L impact * The prevailing incremental borrowing rate at date of modification is used unless the implicit rate in the lease is readily determinable. In-depth application guidance on the new leasing standard. Modification of financial instruments and/or lease contracts to change the contractual benchmark rate may result in a reassessment of the existing contracts. Recognition of lease income. Lease classification is reassessed only if there is a lease modification. Operating lease. 1000. Accounting for the modification: Remeasure lease liability: $1,100,000 Each one focuses on a particular aspect and includes explanations of the requirements and examples showing them in practice, to help you apply the new standard. A lease modification is defined as 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. KPMG Executive Education. Quarterly update from KPMG on accounting and financial reporting developments, including SEC matters and FASB activity. Publications Financial Reporting Developments. The increase in liability of $291,000 is adjusted against the ROU asset, resulting in a ROU asset of $512,000. Example 1 . Applicability. And the impact of the COVID-19 coronavirus pandemic has meant that landlords have been dealing with unprecedented levels of defaults, rent concessions and other lease modifications. In its final public meeting on the leases project, the IASB agreed on the effective date of the new standard and cleared five sweep issues identified during the drafting process. Patricia Stebbens KPMG Australia Michael Voogt KPMG Australia Also on home.kpmg. $300,000: 12 years. b) Otherwise, the lessor should apply the requirements of Ind AS 109, Financial Instruments. Lease Modifications. So the service component will either be separated or the entire contract will be treated as a lease. 1 IAS 17, Leases 2 IFRIC 4, Determining whether an Arrangement Contains a Lease 3 IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors 4 IFRS 16 provides lessees with optional recognition exemptions for leases of low-value items and leases with a lease term of 12 months or less. Applicability. ROUA: $200,000. Changes in estimates or circumstances do not give rise to a new classification of a lease (IFRS 16.66). 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