Accounting Chapter 21 The modification grants the lessee an additional

CE21.4

According to FASB ASC 842–30–35-1 > Sales-Type and Direct Financing Leases

After the commencement date, a lessor shall measure the net investment in the lease by doing

both of the following:

842–30–35–2 After the commencement date, a lessor shall not remeasure the net investment in the

lease unless the lease is modified and that modification is not accounted for as a separate contract

CODIFICATION RESEARCH CASE

(a) According to FASB ASC 842-20–30-1 (Initial Measurement – General):

1. At the commencement date, a lessee shall measure the lease liability at

2. According to 842-20–30-5 (Initial Measurement of the Right-of-Use

Asset), at the commencement 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) According to the FASB ASC 842-10–30-1 to 3 (Lease Term and Purchase

Options), an entity shall determine the lease term as the noncancellable

period of the lease, together with all of the following:

a. Periods covered by an option to extend the lease if the lessee is

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

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.

CODIFICATION RESEARCH CASE (Continued)

(c) According to FASB ASC 842–10–25-8 (Lease Modifications), An entity shall

account for a modification to a contract as a separate contract (that is,

separate from the original contract) when both of the following conditions

are present:

a. The modification grants the lessee an additional right of use not included

IFRS CONCEPTS AND APPLICATION

IFRS21.1

IFRS21.2

The following are similarities and differences between lease accounting under

IFRS and U.S. GAAP.

Similarities

• Both GAAP and IFRS share the same objective of recording leases by

lessees and lessors according to their economic substance—that is,

according to the definitions of assets and liabilities.

Differences

• There is no classification test for lessees under IFRS 16. Thus, lessees

account for all leases using the finance lease method; that is, leases

classified as operating leases under GAAP will be accounted for differently

IFRS21.2 (Continued)

IFRS21.3

Under the finance lease method, the lessee treats the right-of-use asset as if the

asset were being purchased on an installment basis: a financial transaction in

which an asset is acquired and an obligation is created. The asset and the

IFRS21.4

12/31/20

Interest Expense [($300,000 – $48,337) X 8%] ………….. 20,133

IFRS21.5

1/1/21

IFRS21.6

(a) The present value of the lease payments for purposes of classifying the

lease is computed as follows:

PV of Monthly payment of $200 for 50 months

[$200 X 44.36350*] ………………………………………. $8,873

IFRS21.6 (Continued)

(e) Depreciation Expense ……………………………………….. 177

IFRS21.7

The present value of the lease payments (right–of–use asset) is computed as

follows.

(a) Lessee Entries for 2020:

1/1/20

Right-of–Use Asset ……………………………… 427,714

Lease Liability ………………………….. 427,714

ST. LEDGER INCORPORATED

Lease Amortization Schedule

Annuity-Due Basis

Date

Annual

Payment

Interest (6%) on

Liability

Reduction

of Lease

Liability

Lease Liability

IFRS21.7 (Continued)

12/31/20

Interest Expense ……………………………………………… 16,606

Lease Liability ………………………………………….. 16,606

(b) Under the short-term lease election, St. Ledger will not need to record the

right-of–use asset or lease liability on its books. Instead, the company can simply

(c) Lessor Entries for 2020:

1/1/20

Machine ………………………………………………………….. 900,000

Cash ………………………………………………………… 900,000

IFRS21.8

(a) (1) According to IFRS 16, (paragraphs 26-28), a lessee shall measure the

lease liability at the present value of the lease payments that are not paid at

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 less any lease incentives receivable;

(b) variable lease payments that depend on an index or a rate, initially

Variable lease payments that depend on an index or a rate described in

paragraph 27(b) include, for example, payments linked to a consumer price

index, payments linked to a benchmark interest rate (such as LIBOR) or

payments that vary to reflect changes in market rental rates.

(2) (paragraphs 23-24) Initial measurement of the right-of–use asset shall

comprise:

(a) the amount of the initial measurement of the lease liability;

(b) any lease payments made at or before the commencement date, less

IFRS21.8 (Continued)

(b) According to IFRS 16 (paragraphs 18-19), an entity shall determine the lease

term as the non-cancellable period of a lease, together with both:

1. periods covered by an option to extend the lease if the lessee is reasonably

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

(c) IFRS 16 (paragraph 44) indicates that a lessee shall account for a lease

modification as a separate lease if both:

(a) the modification increases the scope of the lease by adding the right to

IFRS21.9

(a) M&S uses both finance leases and operating leases.

(c) M&S disclosed future minimum rentals (in millions) under non-cancelable

operating lease agreements as of 1 April 2017, of:

Within one year ……………………………………………………….. £ 342.0