Leases Knowledge Center
Explore our verified library of Leases transactions. Every entry is reviewed for IFRS compliance and real-world accuracy by our technical accounting team.
How to Record the Initial Recognition of an Operating Lease Right-of-Use Asset and Lease Liability at Commencement Date
Recognizing the right-of-use asset and corresponding lease liability at the lease commencement date for an operating lease — measured at the present value of future lease payments discounted at the incremental borrowing rate.
How to Record Ongoing Straight-Line Operating Lease Expense and the Simultaneous Accretion of Lease Liability and Amortization of the ROU Asset
Processing periodic operating lease expense as a single straight-line charge while separately accreting the lease liability at the effective interest rate and amortizing the ROU asset as the balancing plug.
How to Classify a Lease as a Finance Lease and Record Initial Recognition of the ROU Asset and Lease Liability
Applying the five finance lease classification criteria to determine a lease is a finance lease — then recording the ROU asset and lease liability at present value with subsequent depreciation and interest presented separately.
How to Record Ongoing Finance Lease Depreciation and Interest Expense Separately — Creating Front-Loaded Total Lease Cost
Processing periodic finance lease depreciation on the ROU asset and effective-interest-rate interest accrual on the lease liability — resulting in higher total expense early in the lease term compared to an operating lease.
How to Apply the Short-Term Lease and Low-Value Asset Exemptions to Avoid ROU Asset and Liability Recognition
Electing and applying the practical expedients for short-term leases (term of 12 months or less at commencement) and low-value assets (IFRS 16 only) — recognizing lease payments as straight-line expense without balance sheet recognition.
How to Determine the Incremental Borrowing Rate for Lease Liability Discounting When the Implicit Rate Is Not Readily Determinable
Constructing a lessee-specific incremental borrowing rate (IBR) for each lease using observable reference rates adjusted for the lessee's credit quality, collateral, lease term, and currency — the most critical and judgment-intensive lease accounting input.
How to Remeasure the Lease Liability When Index-Based or Rate-Based Lease Payments Change Due to a CPI or Interest Rate Adjustment
Remeasuring the lease liability and adjusting the ROU asset when lease payments change because of a contractual CPI, inflation index, or interest rate escalation — using the updated index or rate at the remeasurement date.
How to Account for a Lease Modification That Adds Additional Space or Extends the Lease Term as a New Separate Lease
Processing a lease modification that grants additional rights of use not included in the original lease — accounted for as a new separate lease if the modification adds additional underlying assets at a standalone price.
How to Record a Lease Modification That Decreases the Scope — Partial Termination or Early Lease Return — Including Gain or Loss Recognition
Accounting for a lease modification that reduces the lessee's rights — returning floors, reducing space, or shortening the lease term — with gain or loss recognized for the proportionate reduction in the ROU asset and liability.
How to Remeasure an Existing Lease When a Modification Increases Scope Without Meeting the Separate Lease Criteria
Remeasuring the ROU asset and lease liability when a modification adds scope (additional time or assets) at a non-standalone price — using the new IBR at the modification date to remeasure the entire revised lease.
How to Account for a Qualifying Sale-Leaseback Transaction Where the Transfer Meets the IFRS 15 or ASC 606 Sale Criteria
Recording a sale-leaseback where the asset transfer qualifies as a sale — derecognizing the asset, recognizing a gain or loss restricted to the portion of the asset not retained, and recording the leaseback as an operating or finance lease.
How to Account for a Failed Sale-Leaseback Where the Asset Transfer Does Not Qualify as a Sale — Treated as a Financing
Recording a sale-leaseback where the transfer fails the ASC 606/IFRS 15 sale criteria — the asset remains on the seller-lessee's books and the proceeds are recognized as a financing liability.
How to Account for a Lessor's Operating Lease — Retaining the Asset on the Lessor's Balance Sheet and Recognizing Straight-Line Rental Income
Recording a lessor's operating lease where the underlying asset remains on the lessor's balance sheet and rental income is recognized on a straight-line basis over the lease term regardless of payment timing.
How to Account for a Lessor's Sales-Type Finance Lease — Derecognizing the Asset and Recognizing Dealer Profit at Lease Commencement
Recording a lessor's sales-type lease where the lease effectively transfers substantially all risks and rewards — derecognizing the underlying asset, recognizing a net investment in the lease, and booking a dealer/manufacturer profit at commencement.
How to Identify an Embedded Lease Within a Service, Supply, or Outsourcing Contract and Separate the Lease Component
Applying the three-part embedded lease test to determine whether a service contract (IT outsourcing, logistics agreement, data centre contract, manufacturing supply agreement) contains an embedded lease — and separating the lease and non-lease components for accounting.
How to Account for Lease Incentives — Tenant Improvement Allowances Received from the Lessor and Lessor-Funded Leasehold Improvements
Recording tenant improvement allowances (TIAs) received from the lessor — as a reduction to the lessee's ROU asset rather than income — and separately accounting for leasehold improvements made by the lessee using the TIA.
How to Account for a Sublease Where the Intermediate Party Is Both a Lessee Under the Head Lease and a Lessor Under the Sublease
Accounting for subleases from the intermediate party's perspective — maintaining the head lease accounting unchanged and separately accounting for the sublease as a new lessor arrangement based on the ROU asset as the underlying asset.
How to Account for a Long-Term Ground Lease Where the Lessee Constructs and Owns a Building on Leased Land
Recording a long-term ground lease (50-99 years) where the lessee builds and depreciates a building on leased land — with the land lease recognized as an ROU asset and the building as a separate owned PP&E asset, both subject to different useful life assessments.
How to Test a Right-of-Use Asset for Impairment and Record an Impairment Charge When the Lease Is Onerous or the Asset Is Underutilized
Applying ASC 360 (IAS 36) impairment testing to ROU assets when circumstances indicate the carrying value may not be recoverable — such as vacated premises, abandoned leased assets, or restructuring events.
How to Remeasure the Lease Liability When There Is a Significant Event That Changes the Assessment of Whether a Renewal or Termination Option Will Be Exercised
Updating the lease term and remeasuring the ROU asset and lease liability when a significant event (major leasehold improvements, business decision, market conditions) changes whether a previously-excluded renewal option is now reasonably certain to be exercised.
How to Determine Whether a Lessee Is the Accounting Owner of a Build-to-Suit Asset During Construction and Recognize the Resulting Financing Arrangement
Assessing whether a lessee controls a build-to-suit asset under construction — and if so, recognizing both the constructed asset and a financing liability even before the lease commences.
How to Apply the COVID-19 Rent Concession Practical Expedient for Lease Payments Forgiven or Deferred by the Lessor
Applying the ASC 842 and IFRS 16 practical expedients for COVID-19-related lease concessions — accounting for rent reductions, deferrals, and forgiveness as negative variable lease expense rather than as lease modifications.
How to Apply the Portfolio Approach Practical Expedient for Leases with Similar Characteristics to Simplify IBR Determination and Initial Recognition
Grouping leases with similar characteristics (same asset class, similar term, same currency, similar commencement date) to apply a single IBR and discount rate rather than determining a unique rate for each individual lease.
How to Record the ASC 842 / IFRS 16 Transition Adjustment Using the Modified Retrospective Method at the Adoption Date
Recording the cumulative-effect adjustment at the adoption date under the modified retrospective transition approach — recognizing ROU assets and lease liabilities for all operating leases that existed at adoption, with no restatement of prior periods.
How to Account for a Leveraged Lease from the Lessor's Perspective Where Third-Party Debt Finances the Majority of the Asset
Recording a leveraged lease arrangement where the lessor uses significant non-recourse debt to finance the majority of the asset cost — applying the net investment method to recognize the lessor's equity investment and deferred income.
How to Capitalize Initial Direct Costs of a Lease and Amortize Them Over the Lease Term
Identifying incremental costs incurred by the lessee to obtain a lease (commissions, legal fees for lease negotiation) — adding them to the ROU asset at commencement and amortizing them over the lease term.
How to Include Amounts Probable of Being Owed Under a Residual Value Guarantee in the Lease Liability Calculation
Including the lessee's estimate of probable payments under a residual value guarantee in the lease liability — updating the estimate at each reporting date and remeasuring when the estimate changes.
How to Assess and Account for a Lease Purchase Option That Is Reasonably Certain of Exercise — Including in the Lease Term and Liability
Determining when a purchase option is reasonably certain to be exercised and including the option price in the lease liability calculation — resulting in finance lease classification and amortization of the ROU asset over the asset's useful life (not the lease term).
How to Account for Variable Lease Payments Based on Performance or Usage That Are Excluded from the Lease Liability
Recognizing variable lease payments tied to usage, revenue, or performance metrics as period expenses when incurred — excluded from the lease liability because they are not fixed or index-linked.
How to Account for a Partial Sale-Leaseback Where Only a Portion of the Asset Is Transferred to the Buyer-Lessor
Recording a sale-leaseback where the seller-lessee retains a proportionate interest in the underlying asset and only transfers the remaining portion to the buyer-lessor — allocating the gain between the transferred and retained portions.
How to Account for a Direct Financing Lease from the Lessor's Perspective Where No Dealer Profit Arises at Inception
Recording a non-dealer lessor's direct financing lease — where the leased asset's carrying value equals its fair value at lease commencement — recognizing only interest income over the lease term without upfront profit.
How to Identify the Key Differences Between IFRS 16 and ASC 842 and Apply the Correct Standard for Each Reporting Entity
Documenting the principal differences between IFRS 16 (single lessee model — all leases as finance leases) and ASC 842 (dual model — operating and finance leases) and their impact on the income statement, EBITDA, and key financial ratios.
How to Prepare the Required ASC 842 and IFRS 16 Lease Disclosures Including the Maturity Analysis, Weighted Average Rate, and Undiscounted Payment Schedule
Preparing the comprehensive lease footnote disclosures required by ASC 842 and IFRS 16 — including the lease liability maturity analysis, weighted average discount rate and remaining lease term, lease expense by type, and the reconciliation of undiscounted to discounted payments.
How to Account for Asset Retirement Obligations on Leased Properties — Restoring Leased Space to Its Original Condition at Lease End
Recognizing an asset retirement obligation (ARO) for the estimated cost of restoring leased property to its original condition (removing leasehold improvements, reinstating original finishes) as required by the lease agreement — as a separate liability from the lease liability.
How to Apply IFRS 16's Requirement to Remeasure All Leases When There Is a Change in the Assessment of a Variable Lease Payment Based on a Rate
Under IFRS 16, remeasuring all leases with rate-based variable payments when the floating reference rate changes — using the revised rate at the remeasurement date to update the lease liability and ROU asset.
How to Apply the IFRS 16 Sale-Leaseback Rules Where the Seller-Lessee Recognizes Only the Gain on Rights Transferred to the Buyer
Under IFRS 16, recognizing the gain on a qualifying sale-leaseback as the proportion of the total gain relating to rights transferred to the buyer-lessor — with the retained rights reflected in the ROU asset at a proportion of the pre-sale carrying amount.
Need a specific Leases entry?
Our team is constantly updating the hub. If you can't find what you need, suggest a new entry below.
Contact Expert