Leases prepaid for years in advance
Question
How should we account for leases paid in advance for 25 years?
We made a one-off payment for the lease of the land for 25 years at the commencement of the lease, and we will not make any further payments.
At the end of the lease term, we can renegotiate the lease or give up the land.
How to account for similar situation?
Answer
Very interesting situation, but not unusual.
Here, no lease liability is created because the present value of the lease payments not paid at the commencement date is zero (as all is paid).
Thus your entry would be:
-
Debit Right-of-use asset;
-
Credit Cash or bank account.
Tags In
JOIN OUR FREE NEWSLETTER AND GET
report "Top 7 IFRS Mistakes" + free IFRS mini-course
Please check your inbox to confirm your subscription.
1 Comment
Leave a Reply Cancel reply
Recent Comments
- Brian on IFRS S2 Climate-related Disclosures: What, How, When
- Caren on How to Capitalize Borrowing Costs under IAS 23
- Anuruddha Meddage on Summary of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
- Aashish on 5-Step Model for Revenue Recognition under IFRS 15 + Journal Entries
- sandile on Can you capitalize it as PPE or not?
Categories
- Accounting Policies and Estimates (14)
- Consolidation and Groups (24)
- Current Assets (21)
- Financial Instruments (54)
- Financial Statements (48)
- Foreign Currency (9)
- IFRS Videos (63)
- Insurance (1)
- Most popular (6)
- Non-current Assets (54)
- Other Topics (15)
- Provisions and Other Liabilities (44)
- Revenue Recognition (26)
Hi Silvia, in case of office space rental agreement. The tenant has to pay advance rent which is adjustable with monthly rents as per agreement. However, in lease amortization schedule, instead of showing the advance payment in Year 1 as rental payment. In lease schedule, monthly rental payment less advance adjustment amount has been used. Will it be considered as departure from IFRS-16. Looking forward to your comment. Thank you.