Variable lease payments that vary according to an index or a rate are included in the measurement of the lease liability. Initially, such variable lease payments are measured using the index or rate at the commencement date and future changes in the index or rate are not estimated. A lessee only remeasures the lease liability when there is a change in future lease payments resulting from a change in the index or rate that is used to determine those payments.
Lease liability measurement for a lessee
At the commencement date, a lessee includes the following payments relating to the use of the underlying asset in the measurement of the lease liability:
- fixed payments (including in-substance fixed payments), less any lease incentives receivable
- variable lease payments that depend on an index or a rate
- amounts expected to be repayable by the lessee under residual value guarantees
- the exercise price of a purchase option that the lessee is reasonably certain to exercise and
- payments for terminating the lease if the lease term reflects early termination.
Variable lease payments
Variable lease payments are defined as the portion of payments made by a lessee to a lessor for the right to use an underlying asset during the lease term that varies because of a change in factors or circumstances occurring after the commencement date, other than the passage of time.
AASB 16 requires the variable lease payments that vary according to an index or a rate to be included in the measurement of the lease liability. Variable lease payments based on an index or a rate include, for example, payments linked to a consumer price index, payments linked to a benchmark interest rate or payments that vary to reflect changes in market rental rates.
Initially, variable lease payments that depend on an index or rate are measured using the index or rate at the commencement date and future changes in the index or rate are not estimated. A lessee only remeasures the lease liability when there is a change in future lease payments resulting from a change in the index or rate that is used to determine those payments.
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Our publication will help lessees understand the concepts of, and accounting for, the measurement of the lease liability and the right-of-use asset for leases, where there are variable lease payments that depend on an index or a rate.
AASB 16 Leases – Variable lease payments that depend on an index or a rate
Practical Guide – October 2017
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