Theory and Practice
✘ Does not apply to US GAAP (ASC 842) Finance Leases
✘ Does not apply to US GAAP (ASC 842) Operating Leases
✔ Applies to IFRS (IFRS 16)
✔ Applies to UK GAAP (FRS 102)
The initial recognition example was a 2-year building lease with monthly payments of $10,000 and a lessee’s incremental borrowing rate of 4.75% yields a present value of lease payments (lease liability) on day one of $229,617.19. If payments are linked to CPI, and at the start of month 13, CPI increases from 100 to 110, payments increase to $11,000 per month. Assuming the borrowing rate remains unchanged, the NPV of future payments in month 13 is now $126,800 instead of the $115,500. The ROU Asset and Lease Liability are increased by $11,300.
| Account | Debit | Credit |
|---|---|---|
| ROU Asset | $11,300 | |
| Lease Liability | 11,300 | |
| To record the effect of an index change that results in remeasurement: lease liability remeasured upward with corresponding increase to ROU asset. No immediate Income Statement impact (the ROU asset adjustment will be depreciated over the remaining term). | ||
Doing it in Sage Intacct Lease Accounting
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.
Revalue the Lease.
Place the Lease back in Service.