Hi all,
I was wondering if anyone could help with the following queries.
I have 10 floors (original term is 3 years plus option of 2 years). Now, 2.5 years have gone. I have 3 floors vacant, of which, one is already impaired with provision taken. New lease terms have yet to be agreed with the landlord but expected to be as follows:
1. Return 3 floors to them by end of year 3.
2. Lease term will become 5 years plus option to extend by 3 years (likely to exercise)
3. Rent will be lower but stepped up over time (It is claimed to be lower than market rates, so the landlord claimed) - but I don't think this fact matters in my queries below.
My queries are:
1) With still 0.5 year to go before year-end, with 2 other floors vacant, should I take an impairment? If so, what factors should I into account? Is it the entire ROU of the 2 floors currently on the books?
2) On effective date, when the lease terms are modified, I am expecting a gain. So that means if I take an impairment loss this year and a modification gain next year. It seems a bit strange, although it may have fulfilled the accounting rules.
3) What if I am still required to keep the 10 floors but the lease is extended and/or rent is lower, does it matter to how impairment and/or modification gain are accounted for?
I hope I have explained the facts well. If anyone can help, that would be much appreciated.
IFRS 16 - Impairment and Modification Gain
Re: IFRS 16 - Impairment and Modification Gain
Some high level thoughts. (1,2) The impairment test is carried out if there is an indication of impairment, irrespective of the fact that you might get an off-setting gain in the next financial reporting period. Most probably, the impairment test would be carried out on the vacant ROUs. (3) Not sure I follow on this point, sorry,