Lease accounting - beyond the first year

Contract register

A contract register should be implemented and regularly maintained and reviewed to identify lease arrangements under the leasing standard.

Key details of the lease should be recorded in the register to monitor the terms and conditions of the lease and account for them under the leasing standard.

Consumer price index (CPI) increase

For leases where the rental increases because of an index or a rate (for example CPI), the increase will result in a re-measurement of the lease liability when the CPI increase is known.

The change in lease liability as a result of the re-measurement of the lease liability is recognised as an adjustment to the right-of-use (ROU) asset. This re-measurement process is repeated at for example each CPI increase until the end of the lease.

Modification date

A lease modification is a change in the:

• scope of a lease, or
• the consideration (for example rental) that was not part of the original terms and conditions of the lease.

For leases that have been modified since commencement, the modification may result in a change in the measurement of the lease liability and right-of-use asset under the leasing standard.

The modification date, being when both parties agree to a lease modification, is the date where the adjustments will be made to ensure the modified lease is accounted for in accordance with the standard.

Covid–19 related rent concessions

AASB 2020-4 Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions provided a practical expedient that permitted lessees not to assess whether rent concessions that occur as a direct consequence of the Covid-19 pandemic and meet specified conditions are lease modifications and, instead, to account for those rent concessions as if they were not lease modifications. The expedient only applied to lease payments originally due on or before 30 June 2021.

AASB 2021-3 Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions beyond 30 June 2021 has extended the relief to lease payments originally due on or before 30 June 2022.

If you have any questions regarding leasing standards, leasing calculations and scenarios, please get in touch with your local Bentleys advisor.

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.