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.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Lease Liability — IFRS 16 (Remeasured for Rate Change — Floating Rate Lease) | Liability (+/-) | - | 185,000.00 |
| ROU Asset — IFRS 16 (Adjusted for Rate-Based Payment Remeasurement) | Asset (+) | 185,000.00 | - |
💡 Accountant's Note
IFRS 16 requires remeasurement of the lease liability when there is a change in future lease payments resulting from a change in an index or a rate used to determine those payments. This applies to leases where the base rent is linked to a floating interest rate (less common) or where rent is adjusted based on a market rent review mechanism (particularly common in some European and Asian lease markets). The remeasurement uses the revised rate or index at the remeasurement date. This is different from ASC 842, which also requires remeasurement for index changes — the trigger is the same, but IFRS 16 may also apply to market rent reviews (where rent is reset to market rates at specified intervals) which ASC 842 would treat differently.
Practitioner & Systems Framework
💻 ERP Architecture
Market rent reviews (common in UK commercial leases where rent is reviewed every 5 years to the higher of current rent or market rent) create unique accounting challenges. Under IFRS 16: when the rent is reviewed and set to market, the new rent is the fixed payment for the next review period — remeasure at the new payment amount and the IBR at the review date. This creates a step-change in the liability at each review date. For floating-rate leases (leases where the base rent tracks a market interest rate index): remeasure whenever the rate is reset in the contract (monthly, quarterly, annually).
⚠️ Audit Flags
Market rent reviews in IFRS 16 leases are a technical area that requires careful analysis of whether the new rent constitutes a variable payment (excluded from liability) or a fixed payment for the next review period (included in liability). UK commercial property leases with upward-only rent reviews: the rent cannot decrease at review, so the minimum rent is fixed and must be in the liability; any additional market-rate increase is considered fixed for the next period after the review. Auditors test the completeness of remeasurements — each rent review date must trigger a reassessment.
📄 Required Documentation
Lease agreement market rent review or floating rate provisions (review frequency, mechanism, upward-only provisions), review trigger date monitoring schedule, new rent or rate at each review date, remeasurement journal (same amount to liability and ROU asset using original IBR for index changes, new IBR for modifications), disclosure of remeasurement impact, comparison of IFRS 16 vs. ASC 842 treatment for the same lease (if entity reports under both).
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General Accountant Supervisor & IFRS Specialist
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