Lease accounting, interest-free deposit lease period extended after year 1
Details for lease accounting for lease extension
When the lease is modified without any increase in the scope of the lease then lease liability and the right-of-use are recomputed on the effective date of such modification. This would result in amortising an additional amount and the finance charges based on the revised lease liability should be recomputed.
Let us assume the following details for lease accounting:
Lease start date: 1-Apr-2019
Lease end date: 31-Mar-2024
Lease payments: Rs. 2,75,000
Lease Deposit: Rs. 3,00,000
Payment frequency: Annual – payable at the end
Incremental borrowing rate: 9%
Lease extension on 1-4-2020:
Lease Modification effective date: 1-Apr-2020
Lease end date extended up to: 31-Mar-2026
All other terms remain the same
Right-of-use
Extension of Lease period known on 1-Apr-2020
Lease extended to 31-Mar-2026 (from 31-Mar-2024)
Recognition of Lease liability
Impact of Lease extension:
Amortisation of Right-of-use
Revised table of amortisation:
Finance cost
Impact of lease extension:
Interest free deposit
Imputed interest income
Modification table:
Amortisation of Right-of-use
Additional entries passed due to lease modifications:
The carrying value of the deposit on 1-Apr-2020 is Rs.2,09,251. This is recognised at the present value of Rs. 1,21,941 and the difference is recognised in the Right-of-use – Deposit Account.
Trial balance
Profit and Loss Account
Balance Sheet
