Accounting for Leases – ASC 842, IFRS 16 and GASB 87 – Remeasurements

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For lessee leases under ASC 842, IFRS 16 and GASB 87, remeasurements of the capitalized Lease Liability and offsetting ROU (Right Of Use) Asset as of a certain date are sometimes required. If there is a significant event or change in circumstances mid-lease, the lessee is required to reassess the Lease Liability and ROU Asset balance on the Balance Sheet.

These events include:

  • Lessee changes its assessment of whether it is reasonably certain to exercise a renewal, termination or other option that significantly modifies the lease.
  • Lessee changes its assessment of whether it is reasonably certain to exercise a purchase option.
  • An event occurs that causes payments that were previously deemed variable to become fixed.
  • There is a change in the amounts owed by the lessee under residual value guarantee.
  • There is a change in the rent.
  • There is a change in the lease term.
  • There is an asset impairment.

Conversely, a lease modification is considered a separate contract if:

  • The modification grants the lessee an additional right-of-use not previously included in the original lease (i.e., an expansion).
  • Lease payments increase commensurate with the standalone price for the additional right-of-use.

Reassessment of the discount rate used in the present value calculation and the index rate used for future rent increases may also be required to be updated as of the remeasurement date.


 Author: Janet Spargur