Theory and Practice
✔ Applies to US GAAP (ASC 842) Finance Leases
✔ Applies to US GAAP (ASC 842) Operating Leases
✔ Applies to IFRS (IFRS 16)
✔ Applies to UK GAAP (FRS 102)
A 3-year lease is modified in Year 2 to extend for 2 additional years and increase rent for the extension period. This is not a “separate lease” because it modifies the original term and consideration. On the effective date of the modification, the lessee remeasures the lease liability including the new payments for years 4–5 at the current discount rate. Suppose this increases the present value of the lease liability by $50,000. The entry:
| Account | Debit | Credit |
|---|---|---|
| ROU Asset | $50,000 | |
| Lease Liability | $50,000 | |
| To record the effect of a lease modification that increases scope/payments: 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). The lease continues, potentially with a new classification test under ASC 842. | ||
Doing it in Sage Intacct Lease Accounting
Take the lease Out of Service
Edit the Lease, extend the End Date, and Save.
Generate Payment Schedules, Add or Import further Payment Changes.
Revalue the Lease.
Place the Lease back in Service.