Best guide IFRS 16 Lessor modifications

Best guide IFRS 16 Lessor modifications

summarises the accounting for lessor modifications that depends on – and may change – the lease classification.

Unlike IAS 17 Leases, the new standard provides detailed guidance on the lessor accounting for lease modifications, with separate guidance for modifications to finance leases and operating leases.

However, additional complexities arise for modifications of a finance lease receivable not accounted for as a separate lease for which, under paragraph 80(b) of IFRS 16, the lessor applies the requirements of IFRS 9 Financial Instruments. A number of issues arise due to differences in the basic concepts between IFRS 16 and IFRS 9.

The following diagram summarises the accounting for lease modifications by a lessor.

Best guide IFRS 16 Lessor modifications

Separate lease Not a separate lease – Finance to operating Not a separate lease – Finance to finance Lessor modifications to operating expenses

* A lessee reassessment of whether it is reasonably certain to exercise an option to extend, or not to exercise a termination option, included in the original lease contract is not a lease modification

Read more

Related IFRS posts

IFRS 9 Modified financial assets

IFRS 9 Modified financial assets – If the contractual cash flows on a financial asset are renegotiated or modified, the holder needs to assess whether the financial asset should be derecognised. While IAS 39 contains guidance on when financial liabilities that have been renegotiated or modified should be derecognised, it does not do so for financial assets.

Similarly, as the derecognition literature in IAS 39 has been carried forward to IFRS 9, the IASB has still not established criteria for analysing when a modification of a financial asset constitutes a derecognition event. However, an entity may refer to the decision made by the IFRS Interpretations Committee in May 2012.

The Interpretations Committee was asked to consider the accounting treatment of … Read more

Modification gain or loss

Modification gain or loss is amount from adjusting the gross amount of a hedged asset to reflect the renegotiated or modified contractual cash flows