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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › IFRS 16 lease modification question for scope reduction
Please can anyone help me with this question for IFRS 16 lease modification accounting from the lessee perspective? (question is at the end)
Scenario 1, known accounting treatment: Under IFRS 16, a lessee has a lease for 5,000 sqm of office space, and the lease is set to end on 31 December 2025 with no renewal rights. In September 2025, the lessee enters into a new lease for the same 5,000 sqm with the landlord, running from 1 January 2026 to 31 December 2030. Although this is legally a new lease starting in 2026, from an accounting perspective (economic substance) it is treated as a term extension of the same underlying asset, as a lease modification. Therefore, the right-of-use (ROU) asset and lease liability should be updated in September 2025 (=effective date of lease mod) to reflect the extension through to 2030, rather than waiting until January 2026 to make the update.
Adjusted Scenario 1, question on accounting treatment: lessee concludes the new lease in September 2025, the new lease means that the lessee will cut 1,000 sqm from the current 5,000 sqm it leases (=scope reduction). The start date legally for the new lease is still 1 January 2026, ending 31 December 2030, no other difference in T&C.
Is this adjusted scenario also accounted for as a ‘lease modification’ like the original scenario whereby the ROU asset and lease liability should be updated in Sep 2025 (=effective date of lease modification) rather than in Jan 2026?
This is way beyond the scope of FA, please ask on the SBR forum
