IFRS 16 Variable EIR

[Pybo]

Hi,

I have a lease agreement which has fixed Payments.
It also has a clause which states the implicit interest rate that should be used for calculating the PV of the future lease payments and the interest charge.
This interest rate is the higher of 5% or 2% + variable base rate.
On initial recognition of of the lease liability and ROUA 5% was used as this was the highest interest rate.
The base rate changes every month and the base rate + 2% is higher than the 5%.

My question is does the IFRS 16 working schedule need to be updated every time the variable rate changes, or should I just keep the schedule as I initially calculated it using the 5%?

If possible please could the standard where it states what method should be used in this scenario be provided?

Thank you!

[JRSB]

I don't see how an implicit interest rate can be variable in that sense, since it is implicit through replicating the present value of lease payments compared to what you would pay to acquire the asset outright. are the lease payments themselves variable?

[Pybo]

Thanks for the reply.

The lease payments are fixed.
In a lease agreement which does not state the EIR to be used to measure the PV of future payments, we would usally look to the market rate and then apply this.
This lease agreement has a clause which states the EIR to be used is the higher of 5% or 2% + variable base rate.

So maybe this EIR is not variable, and instead this clause is just stating the EIR that should be used on initial recognition is one of the above rates?
And therefore the base rate changing after this should have no effect on recognition?

Otherwise you would have to recalculate the PV of the future lease payments every time the base rate changes and post an adjustment to the lease liability and ROUA.

[Marek Muc]

These are variable lease payments and you'll need to reassess the lease liability at reach date the rate resets:
https://ifrscommunity.com/knowledge-bas ... e-payments
https://ifrscommunity.com/knowledge-bas ... -liability