Incorporate Currency Lease For Free

All incentives for the agreement of a new or renewed operating lease should be recognised as an integral part of the net consideration agreed for the use of the leased asset, irrespective of the incentive's nature or form, or the timing of payments. [IFRS 16 para 81].

The lessor should recognise the aggregate cost of incentives as a reduction of rental income over the lease term. This should occur on a straight-line basis, unless another systematic basis is more representative of the time pattern over which the benefit of the leased asset is diminished.

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.

Under ASC 840, when a lessee received a TIA, they were receiving a lease incentive. ASC 840-20-25-6 stated that lease incentives shall be recognized as reductions to rent expense by the lessee (reductions to rental revenue by the lessor) on a straight-line basis over the term of the lease.

1 Lessee accounting for foreign currency leases - after ASC 842. A lessee classifies a lease as either a finance or operating lease based on the criteria prescribed in ASC 842, Leases. One of those criteria requires reporting entities to determine the present value of the lease payments.

A lease will be recorded on the balance sheet as a right-of-use (ROU) asset and lease liability. The lease liability is the payment obligation over the term of the lease contract, while the ROU asset represents the control of the asset under the lease contract.

Lease Incentive Examples Leasehold improvements paid for by the lessee are capitalized by the lessee and amortized over either the remaining term of the lease or the useful life of the improvement (whichever is shorter). Any amounts paid by the lessor are considered a lease incentive.