Modify Currency Lease For Free

In May 2020, the IASB issued Covid-19-Related Rent Concessions (Amendment to IFRS 16). The pronouncement amended IFRS 16 Leases to provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification.

The amendments to IFRS 16 require a seller-lessee to apply the subsequent measurement requirements for lease liabilities unrelated to a sale and leaseback transaction to lease liabilities arising from a leaseback in a way that it recognises no amount of the gain or loss related to the right of use that it retains.

IFRS 16 requires companies to reassess the lease term during the life of a lease contract in specific circumstances. This requirement and that to reassess other key estimates and judgements if the lease term changes, introduces financial statement volatility.

The lease liability is effectively treated as a financial liability which is measured at amortised cost, using the rate of interest implicit in the lease as the effective interest rate. A lessee enters into a 20-year lease of one floor of a building, with an option to extend for a further five years.

The amendments to IFRS 16 require a seller-lessee to apply the subsequent measurement requirements for lease liabilities unrelated to a sale and leaseback transaction to lease liabilities arising from a leaseback in a way that it recognises no amount of the gain or loss related to the right of use that it retains.

Per ASC 842-10-25-8, 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: The modification grants the lessee an additional right-of-use not included in the original lease.

Application to lease accounting Since a lessee's lease liability is a monetary item, the liability is translated using a current exchange rate at the end of each reporting period and foreign exchange differences are recognised in profit or loss.

IFRS 16 Leases contains detailed guidance on how to account for lease modifications. 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.