Theory and Practice
✔ Applies to US GAAP (ASC 842) Finance Leases
✔ Applies to US GAAP (ASC 842) Operating Leases
✘ Does not apply to IFRS (IFRS 16)
✘ Does not apply UK GAAP (FRS 102)
Annual rent is $50,000, indexed to CPI. At commencement, CPI is 100, so $50k is included in the lease liability calculation. After Year 1, CPI rises and rent for Year 2 increases to $52,000.
Under ASC 842: No remeasurement at Year 2. The lease liability remains based on the original $50k/year schedule. The extra $2,000 for Year 2 is simply treated as variable lease expense when incurred. At the payment date, the lessee would record:
| Account | Debit | Credit |
|---|---|---|
| Variable Lease Expense | $2,000 | |
|
Lease Liability | $50,000 | |
| Cash (or Accounts Payable) | $52,000 | |
| Pay $52k rent: $50k was the originally scheduled payment (reduces liability), $2k is additional due to CPI increase (expensed immediately). The lease liability remains as if payments were $50k; it will not fully extinguish by maturity, reflecting the cumulative unrecorded index increases – but any remaining liability is eliminated by final payments. | ||
Doing it in Sage Intacct Lease Accounting
Ensure that the Non-Capitalized Lease Expense GL Account is populated against the Lease Class in use.
Take the lease Out of Service
If no other changes are required to the lease, you many need to run the Generate Payment Schedules option to get the Lease into a Change Status of ‘Payment Schedules Generated’
Then Add or Import further Payment Changes to reflect the changes to the index.
Do NOT Revalue the Lease.
Place the Lease back in Service.
When Payments are processed, the effect of the change of index will be posted to the Non-Capitalized Lease Expense GL Account.