Australia Accounting for options and rent reviews (Lease accounting)

[Jono]

Hoping someone can assist with lease accounting as it relates to IFRS 16.

The Australian version of the standard refers to adjusting the lease liability value when the lease term changes and also when the cash flow change as a result of a change in index or a rate.

The timing though differs, when the change in lease term occurs, the revaluation is instantaneous, however the revaluation due to a change as a result of a change in index or a rate occurs at the point the payments change, not instantaneously.

Often though a change in term such as an option being exercised is accompanied by the change in index or rate such as a market rent review.

I was wondering if the revaluation as a result of a change in lease term should include the change in valuation as a result of an index or rate at the same time, or should they be looked at as 2 separate transactions. ie: An option being exercised with a market rent review, should the timing of the revaluation around the option being exercised and the market rent review be immediate, or should they be viewed as 2 separate transactions with 2 separate valuation dates.

 

[Fidget]

I'd look at them as separate things. One doesn't have to happen because of the other, or at the same time as the other, so whilst they can be linked, they're different things.

Something that does have to happen though if there's a change in lease term or reassessment of a purchase option to 'probable' is that the discount rate needs to be reassessed at the same time.

 

[Jono]

Thanks for your reply.