Change Currency Lease For Free

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.

As can be seen from the diagram, a modification will only be treated as a separate lease if it involves the addition of one or more underlying assets at a price that is commensurate with the standalone price of the increase in scope.

Lease liabilities on the balance sheet skyrocket after the transition.Because ASC 842 requires the recognition of a right-of-use (ROU) asset and a lease liability, the addition of operating leases to the balance sheet is the primary contributing factor to this increase.

A lessor's accounting for a lease modification depends on the type of modification made to the lease. Depending on the changes made to the lease contract, a lease modification can result in either a separate new contract (i.e., accounted for separate from the original contract) or a new modified contract.

The long-awaited change to the lease accounting standard ASU 2016-02, Leases (ASC 842) is effective for non-public, calendar year-end companies on January 1, 2022. Under the new lease standard, companies must record a right of use (ROU) asset and a lease liability on the balance sheet for most leasing arrangements.

Examples of Triggering Events for Lease ReassessmentsConstruction of significant leasehold improvements. Subleasing an asset for a period beyond end of the current lease term. Significantly modifying or customizing the asset. Making a business decision directly relevant to option exercise.

Remeasurement of the lease liability This occurs when the lessee reassesses whether it is reasonably certain to exercise an option to extend the lease or to purchase the underlying asset, or not to exercise an option to terminate the lease early.