Unify Company Lease For Free

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.

This includes the lease being recorded on the balance sheet as a right-of-use or ROU asset and corresponding lease liabilities. The ROU asset is a new concept introduced to lease accounting with FASB Accounting Standards Update, ASC 842 and the International Accounting Standards Board version called, IFRS 16.

FASB ASC 842-10-15-37 provides a practical expedient to combine lease and non-lease components and treat the combined component as a lease component (practical expedient) which may be elected by underlying class of assets.

The lessee shall allocate the consideration in the contract on a relative standalone price basis to the separate lease components and the nonlease components of the contract. Initial direct costs should be allocated to the separate lease components on the same basis as the lease payments.

From a lease accounting perspective, a capital lease is treated as if the lessee has purchased the asset using debt financing. The asset and the associated lease liability are recorded on the lessee's balance sheet. Each lease payment is allocated between the reduction of the lease liability and interest expense.

The lessor reports the lease as a leased asset on the balance sheet and individual lease payments as income on the income and cash flow statements. The lessee reports the lease as both an asset and a liability on the balance sheet due to their stake as a potential owner of the asset and their required payment.

In operating lease accounting, the lessor reports the leased asset on the balance sheet and the interest revenue and the asset depreciation on the income statement. The lessor reports the lease payment as the cash inflow on its cash flow statement.

When leases are acquired in a business combination, their accounting treatment is ?reset? as if they were brand new leases as at acquisition date in the (consolidated) financial statements of the acquirer.