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Chapter 8 — Lessee Accounting

8.5 Remeasurement of the Lease Liability

8.5 Remeasurement of the Lease Liability

ASC 842-20
35-4 After the commencement date, a lessee shall remeasure the lease liability to reflect changes to the lease payments as described in paragraphs 842-10-35-4 through 35-5. A lessee shall recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. However, if the carrying amount of the right-of-use asset is reduced to zero, a lessee shall recognize any remaining amount of the remeasurement in profit or loss.
35-5 If there is a remeasurement of the lease liability in accordance with paragraph 842-20-35-4, the lessee shall update the discount rate for the lease at the date of remeasurement on the basis of the remaining lease term and the remaining lease payments unless the remeasurement of the lease liability is the result of one of the following:
  1. A change in the lease term or the assessment of whether the lessee will exercise an option to purchase the underlying asset and the discount rate for the lease already reflects that the lessee has an option to extend or terminate the lease or to purchase the underlying asset.
  2. A change in amounts probable of being owed by the lessee under a residual value guarantee (see paragraph 842-10-35-4(c)(3)).
  3. A change in the lease payments resulting from the resolution of a contingency upon which some or all of the variable lease payments that will be paid over the remainder of the lease term are based (see paragraph 842-10-35-4(b)).

Footnotes

13
The discount rate would not be updated in a scenario in which a change in lease term or the exercise of a purchase option was already reflected in the discount rate determination but the exercise of the option itself was not deemed reasonably certain at lease commencement.
14
In addition, we believe that there may be other acceptable approaches, including an election to move directly to step 2 rather than estimating the lease incentive as of the commencement date.