Lease modification accounting handles a change to the contract's scope or consideration. Remeasurement updates an existing lease for specified changes in estimates or facts. Both require a dated route before amounts are changed.
Route the event at its effective date
A modification is a separate contract when it grants an additional right of use at an appropriate standalone price. The price can reflect the circumstances of the contract. Otherwise, the lessee reallocates remaining consideration, reassesses classification, and remeasures the liability using the required effective-date rate. A partial termination also reduces the ROU asset and can create a gain or loss. Term or purchase-option reassessments follow their own trigger rules.
For example, a lessee adds a second floor at its standalone price. That can be a separate contract. Another amendment might shorten the existing warehouse term. The lessee then preserves the original schedule through the effective date and applies the termination guidance. It reduces the liability and ROU asset and records any difference on that date. It does not rewrite commencement balances with hindsight.
Impairment and sublease decisions remain separate scope lanes. Read the separate-contract test in ASC 842-10-25-8 and lessee remeasurement in ASC 842-10-25-11 through 25-13.
Put the concept to work
Analyze this concept
- Route a supplied lease change through separate-contract, scope-reduction, remeasurement, revised-rate, classification, and role-specific accounting at the correct effective date.
Learning resources
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Build on these ideas
- Contract modification — Analyze
To analyze this concept: Helpful. A modification changes enforceable rights and obligations rather than merely updating an estimate.
- Lease term and options — Analyze
To analyze this concept: Required. Changes in term or purchase-option assessment can trigger remeasurement.