Modify Company Lease For Free

The agreement to extend the lease is a modification because it was not contemplated in the original terms of the lease. Since the modification does not add the right to use one or more underlying assets, it does not meet the criteria in IFRS 16.44(a) to be accounted for as a separate lease.

If the modified contract is a lease or contains an embedded lease, a lessor should account for as a single new lease from the effective date of the modification. Since the modified lease is recorded as a single new lease, the lease classification should be reassessed based on the modified terms.

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.

A lease termination results in a gain or loss charged to the income statement immediately. A modification does not result in an immediate charge to the income statement, unless the modification is a considered a partial termination (see LG 5.5. 1). In that case, there would be some impact to the income statement.

(2) If a capital lease is renewed or extended and the renewal is classified as an operating lease, the existing lease shall continue to be accounted for as a capital lease to the end of the original term, and the renewal or extension period shall be accounted for as an operating 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.

A lease modification, as defined by ASC 842, refers to changes in the terms and conditions of a lease that result in an alteration of the lease's scope or consideration. These modifications require specific accounting treatment to ensure compliance with ASC 842.