IFRS 16: Commitment to renew lease

[Anuradha]

If we commit to renew a lease at as March 31, 2020, but agreement is still not signed by parties , do we need to include the liability on the face of financial statements or do we need to show as a commitment.

Detailed explanation: We committed to extend an existing lease with expansion of space . The Lease Commencement date for the additional space is 1st March 2020 and the original lease is renewed from 21st Nob 2020. But the lease agreements are still not signed by both parties. No lease payments made still and building is not occupied. Should we accrue for the lease payments and account for the RoU asset & Liability in Financial Statements 2019-20? And should we disclose the commitment?

[JRSB]

Has it been made available for your use, even if you haven't occupied it yet?

[JRSB]

I guess the date of commitment would be the date of signature by both parties unless there another convention in your legal jurisdiction.

[Marek Muc]

1/ How do you commit without signing the contract?
2/ This is an extension of the lease but the building is still not occupied? So it was empty during the original lease term before extension?

Have a look and this summary of determination of lease term:
https://ifrscommunity.com/knowledge-bas ... ease-term/

How do you see the lease term for this building? Note 'the broader economics of the contract' referred to by IFRIC

[Anuradha]

Thanks you for your response.

The extension of lease is for building we are using currently and the option to extend/renew lease term is part of the original lease agreement. We are now exercising that option.No change in terms and space .

The additional space is considered as different lease and separate agreement will be made,

So, my proposal is as below.

1. For the existing lease extension, since the option is already in the original lease, it is not modification, hence no re measurement needed. Since the agreement is not signed as at 31st March 2020, no commitment needs to be reported. It will only be subsequent event disclosure. But when agreement is signed, When will we account for the RoU and Lease liability? On the date of signing contract or from the extension date?

2. For the separate lease, RoU and Liability will be considered in books on the date of commencement. Since the agreement is not signed as at 31st March 2020, no commitment needs to be reported. It will only be subsequent event disclosure

[exIFRS]

Are you comfortable that this is not a lease modification (IFRS 16 para. 44). Specifically the consideration for the additional space is commensurate with the stand-alone price. Specifically, you haven't received a discount because of the lease you already have?

[pub_acco]

It sounds to me that the 'commitment' to renew the original portion of the lease contract may qualify as a significant event defined in IFRS 16 para 20 and thus trigger the remeasurement of the lease liability pursuant to para 40.

[Marek Muc]

the points made in previous points are all valid!

plus, if the extension option was already written in the contract, this appies:
https://ifrscommunity.com/knowledge-bas ... te-a-lease