Lease Renewal - derecognise original ROU Asset?

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DSD
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Joined: 18 Aug 2021, 15:59

Lease Renewal - derecognise original ROU Asset?

Post by DSD »

Hi,
We have a situation where our lease expired and moved onto a rolling contract whilst a new lease was agreed. The new lease was subsequently signed a few months later for the same space (same right of use asset) and backdated to the end of the previous lease agreement.

A question has arisen as to whether we should be disposing of the old, nil NBV cost and accumulated depreciation relating to the original lease agreement.

My thinking was that as we were/are still using the asset, we should still keep the original cost and accumulated depreciation values (and then just Cr Lease Liability and Dr ROU Asset Cost for the new lease agreement), and in effect treat this as a lease modification - but the only illustrative examples I can find refer to changes that occur during the original lease term, so not sure if I'm correct in my thinking.

Does anyone have any views as to whether it would be wise to derecognise the original cost and accumulated depreciation pertaining to the original lease agreement? Or keep them as the asset is still being used (albeit under a new lease agreement)?

Any help would be much appreciated.
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Marek Muc
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Re: Lease Renewal - derecognise original ROU Asset?

Post by Marek Muc »

If you were still using the asset on the last day of the lease term, it kind of implies that you had to reassess the lease term, so the lease wasn't terminated from an accounting point of view. Remember here that accounting lease term may differ from the contractual non-cancellable lease term:
https://ifrscommunity.com/knowledge-bas ... ease-term/
DSD
Posts: 2
Joined: 18 Aug 2021, 15:59

Re: Lease Renewal - derecognise original ROU Asset?

Post by DSD »

Thank you for the response! That's really helpful. So in line with that, the original lease effectively didn't end in substance and was then modified by the new agreement, and therefore no disposal of the original cost or depreciation?
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Marek Muc
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Location: Warsaw, Poland

Re: Lease Renewal - derecognise original ROU Asset?

Post by Marek Muc »

well, it depends on terms of the modification as described here:
https://ifrscommunity.com/knowledge-bas ... fications/
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