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Guys, Please help me here...... Consider this example: On the day of activation of Finance Sublease, the values are as follows: Head Lease Right of Use value=100,000 (WDV of ROU asset on Sublease activation) Percentage of Sublease=100% Sublease Net Investment (NIV) (this is a calculated value which ...

There are two types of Scope Decrease as I understand from the standard. a) Scope Decrease due to Term Reduction- The payments which fell off due to term reduction will result in reduction of liability with the PV of lost payments @ existing Discount Rate b) Scope Reduction from Units/Area reduction...

All, I am working on a solution for Finance Subleases per IFRS 16. Are the below presumptions reasonable? · When a Finance Sublease is terminated, I opine, the carrying value of Netinvestment (NIV) is used to re-recognize the ‘ROU’ balance on the Head Lease. Do you agree? This is in line with re-rec...

Dear All, I am understanding a big difference between IFRS 16 and ASC 842 on the topic of amendment of Finance Lessor Lease which as follows: IFRS 16, other than Interest rate change, most of the amendments like Lease payments changes, lease extensions, contracts result in Gain/Loss. Existing intere...

Hi Ketan, A quarterly compounding wouldn't necessarily mean you are changing monthly principal balance. There are two ways to do this. Interest from payment to payment date is spread evenly to 3 months. Method 2, some solutions find EIR which is slightly different from the quarterly rate. EIR is lik...

If the asset is 'Identifiable' and under the control of lessee, there is lease in the agreement. For example, if there is a cloud service, the lessor generally controls, which hardware, port etc and in such a case it is a mere Service Contract...hope this clarifies.

All, I am putting my understanding of Subleases which are Finance in nature and request others validation. a. When the sublease is ‘Finance’ and upon its activation, the ROU on the Head Lease is offset with the appropriate percentage. For example, if 80% of the property is on sublease, we will offse...

Advance Payments are PVed with '0' days. So this value of 2667 is after deducting 2000 from total value of 4667 as this amount is paid day 1. ROU definition per IFRS16 is PV of Lease Payments remaining after the lease start date +/- Prepayments and other adjustments. Your liability if 2667 shall be ...

I Would reconnize offset to ROU on Head Lease as follows:

On Head Lease
Sublease Investment Clearing...Dr
ROU...Cr

On Sublease:
Net Investment...Dr
Sublease Investment Clearing...Cr
Gain/Loss...Cr

Mark, I see a problem using implicit rate. ROU value which is going to be derecognized is taken as 'Cost' and cash inflows are equated to this to derive at IRR. If so, in no case we will get Gain/Loss on Sublease activation. But most of the examples assume and calculate Gain/Loss. What do you think ...

I have the following queries: a. During termination of sublease, can we rerecognize ROU asset on the Head Lease at the carrying cost of Net Investment on a Finance Sublease b. Can we always use the Discount Rate on Head lease on Sublease too? c. During amendment of Sublease for sublease payments, ex...

But if there is no leverage on paying in advance, why would lessee close the Liability in advance?
Just wondering if the lessee is given an incentive to pay PV of payments only coz thats so logical, there may not be any that amount left in the Lease Liability...isn't it? Just curious

One major difference between IFRS16 and ASC842 seems to be with respect to remeasurement of Liability when Index rents change. For example Rents were 100 every month but after a year, due Index movement 100 became 105. IFRS16 mandates remeasurement of Liability using 105 for all future years but FAS...

After paying the remaining amount, Liability is remeasured to '0' with the future interest amount.
Since this is not termination, it is to be treated as remeasurement of Liability and hence the difference between carrying value of Liability and Lease Payments to be adjusted into ROU as well.

This is interesting question no doubt :) As per me, ROU is unaffected. it was calculated upfront based on Liability and it is only liability which is going down to zero. No further 'Interest' expense in this case. If the asset is purchased, your ROU needs to be closed and offset with the Asset cost....

Cancellation of Option means to kill an Option which is no longer required. For example if you have a Renewal Option for 12 months and the option amount is considered into calculations already in ROU/Liability and now it is mutually agreed that it is no longer required as they lessee and lessor have...

Hi Marek,

I opine, exercise of Option, there is no modification. Exercise of Option means implementation of terms of contract. Isn't it?
But for Cancellation of Option, i guess, there is a scope change....Renewal Scope Decrease and Termination, Scope Increase. Isn't it?

Dear Marek, Are these conclusions correct then? a. An exercise of Option is not a scope change as the Option is already factored into calculations. b. Cancellation of Renewal Option is scope increase and hence scope increase should be applied. Cancellation of Termination Option is Scope Decrease and...

Dear Marek, Things are not so straight forward man. There are high stakes. When people lease Equipment, they lease identifical units of an asset. For example 10 desktops, 5 printers etc from the same lessor. If there is a scope increase, lets say for desktops....the number is going up by 2 and the i...

Dear All, I see some conflicting examples in Scope Changes in few websites. If a lease has lets say 3 assets and a 4th asset is added, there is an increase in ROU. Does this mean it is a scope change at lease level and hence recalculations to be performed for entire lease liability on the lease? Sim...

Hi, No changes if the Options are exercised. But what if the Options which were considered into calculations are Cancelled as no longer required? There is no obligation from these options..... 1) hence the ROU and Liability portion calculated out of the options to be reversed from beginning of the l...

Dear All, We have leases which are considered into calculation of Right of Use and Liability(like to be exercised types) for 'Renewal' or 'Termination'. Since these amounts are already considered into calculations and they are future dated, I come across few questions: a. If above Options are cancel...

Below is a query from a friend of mine: Experts, please validate my response. My company had taken a capital expenditure loan of lumpsum 10m $ with a view to spend in the capex projects which are so many (could be 15 types of projects). How the interest cost will be capitalizable ? My Response: If s...

In real world, customers have multiple payments on a lease for example: a. a payment for initial direct cost b. Payment towards rent c. Payments made regularly say for Insurance and they want to capitalize into ROU/Liability. Coming to Forex payments, as mentioned by me two approaches have been pres...

My guess, reduction in scope like terminating few cars though created as a new lease, on existing lease, reduction tantamounting to profit/loss adjustment cannot be avoided. New lease is helpful when there is an upward correction. It is easy as existing Liabilities/ROUs need not be touched. But for ...

Dear All, Such an overwhelming response...thanks. I am working as Product Manager(SME) for few software solution products for IFRS16. 1. Unfortunately, most of the examples have just one payment on leases. But customers have multiple payments for majority of leases. Hence fundamental question, shoul...

Are my given below assertions/understanding correct about IFRS16? 1. Reduction of term is always 'reduction' in scope and hence gain/loss gets calculated using latest applicable discount rate. 2. Increase/decrease in lease payments through pre-scheduled 'Rent' review process or payments change resul...