Lease accounting, lease period extended after year 1 – Journal entries
Details for lease accounting for lease extension
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
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
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.
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:
Trial balance
Profit and Loss Account
Balance Sheet
