Modify Payment Lease For Free

Lease modification not accounted for as a separate lease Allocates the consideration in the modified contract as when separating components of a contract. Determines the lease term of the modified lease. Remeasures the lease liability by discounting the updated lease payments using a revised discount rate.

Lease accounting under ASC 842 requires remeasurements when the event involves more than just a renegotiation of lease terms but also conditions including changes in the lessee's facts, assumptions or other circumstances. Companies should first evaluate if the contract modification contains a lease.

A modification of lease, also called a lease amendment or lease modification, is an agreement that formally changes the original terms and conditions of a lease. It allows the parties to agree to changes without having to sign an entirely new lease.

A lessee should account for any direct costs, lease incentives, or other payments made by the lessee or lessor in connection with a lease modification in the same manner as those items would be accounted for in connection with a new lease.

A lease modification results in a continuation of the existing lease if it does not result in a separate lease and it does not change the classification of the lease. In this case, the lessee remeasures the lease liability using a revised discount rate and adjusts the right-of-use asset by the same amount.

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.

IFRS 16 defines a lease modification 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 (for example, adding or terminating the right to use one or more underlying assets, or extending or shortening the contractual lease term)'.