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 lessee initially determined a 5-year lease with a 5-year renewal option was only 5 years long. In Year 3, the lessee now concludes it will exercise the 5-year extension (making total term 10 years). Suppose the remaining payments to be added have a present value of $200,000 at the current discount rate. At the decision date in Year 3:
| Account | Debit | Credit |
|---|---|---|
| ROU Asset | $200,000 | |
| Lease Liability | $200,000 | |
| To reflect additional lease payments for exercised extension (lease liability remeasured with new term; ROU asset increased equivalently). No immediate gain/loss – the higher asset will be depreciated over the longer remaining term, and the larger liability will yield more interest over time. | ||
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.