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A lease modification includes adding or terminating the right to use one or more underlying assets, or extending or shortening the contractual lease term. IFRS 16's lease modification guidance can be summarised into the diagram overleaf.

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.

If a lease modification creates a separate lease, the lessee makes no adjustments to the original lease and accounts for the separate lease the same as any new lease. For a modification that is not a separate lease, the lessee's accounting depends on the nature of the modification.

Discount rates The use of a revised discount rate in remeasuring the lease liability reflects the fact that the lease modification has changed the economics of the lease ? because of the change in scope and/or price ? which the discount rate is intended to reflect.

After initial recognition on the balance sheet, ASC 842 requires lessees to update the measurement of leases for modifications. The guidance defines a lease modification as a change to the terms and conditions of a contract that results in a change in the scope or the consideration for a lease.

Ing to the IFRS 16, A re-assessment of the lease liability takes place if the cash flows change based on the original terms and conditions of the lease. Changes that were not part of the original terms and conditions of the lease would be considered as lease modifications.

The lease discount rate is a rate used to determine the present value of future lease payments and further, the lease liability on a lease. The lease discount rate is determined by identifying the rate implicit in the lease. The implicit rate is the rate charged by the lessor and is usually stated in the contract.