Could anyone assist please with an interpretation of the IFRS accounting standards in relation to the definition of “stand alone price”?
Must a ‘stand alone price’ be a current market rent at the time additional area is required?
Or can it be a rent value previously agreed whenever additional area may be required for an agreed period of time?
Lease modifications
A lessee shall account for a lease modification as a separate lease if both:
a)the modification increases the scope of the lease by adding the right to use one or more underlying assets; and
b) the consideration for the lease increases by an amount commensurate with the stand alone price for the increase in scope and any appropriate adjustments to that standalone price to reflect the circumstances of the particular contract..
Paragraph 14 of IFRS 16 is key here "The relative stand-alone price of lease and non-lease components shall be determined on the basis of the price the lessor, or a similar supplier, would charge an entity for that component, or a similar component, separately. If an observable stand-alone price is not readily available, the lessee shall estimate the stand-alone price, maximising the use of observable information."
In the Basis for Conclusions the "IASB acknowledged that the stand-alone price of lease and non-lease components might not be readily available and, consequently, decided to permit the use of estimates, maximising the use of observable information."
So basically the answer to your question would appear to be no and yes. Must it be the current market rent? No, but that is the preference. However the previous rent value could be an important observable input. But the question is how relevant is it, how recent? Have rents changes? What adjustments should be made.
