Reassessment of Lease Liability
Reassessment of Lease Liability
Reassessment of Lease Liability
After 3 years on January 1, 2024, the lessee decided to extend the lease for a further 5 years.
New Annual rental payable at the end of each year 600,000
New Implicit interest rate 8%
PV of an ordinary annuity of 1 at 8% for 5 periods 3.993
PV of 1 at 8% for 2 periods 0.857
PV of an ordinary annuity of 1 at 8% for 2 periods 1.783
500,000 600,000
1/1/2021 12/31/2021 12/31/2022 12/31/2023 12/31/2024 12/31/2025 12/31/2026 12/31/2027 12/31/2028 12/31/2029 12/31/2030
0 1 2 3 4 5 6 7 8 9 10
10% 8%
1 Initial Measurement of Lease Liability
Payments 500,000
PVOA 3.791
1,895,500
On Dec. 31, 20x2, due to a significant change in circumstances, Entity X is now reasonably
certain to extend the lease. The revised implicit interest rate is 10%.
1 Initial Measurement of Lease Liability and ROUA Journal Entry
Fixed payments 100,000
Multiply by: PV of an annuity due of 1 3 Jan. 1, 20x1
@12%, n=3* 269,005
Total
*The lease term is 3 years (excluding the 'uncertain' extension)
5 Adjusting Entry
Right-of-use asset 298,422
Dec. 31, 20x2
Leae Liability 298,422