Example 15—Modification that is a separate lease Lesse enters into 10a lease for 2000 square metres of office space, At the beginning of Yea 6 Lesee and Lessor agre to amend the original lease for the remaining five years to inde am adiional 3,000 square metres of ofr sp same building, The adalitional space is msade avaiable for use by lessee at the second quarter of Yar 6, The inrease i total consideration forthe lease is omnmensurate with the current market rate for the new 3,00 square metres of office ie space, adjusted forthe discount that Lessee reeves reflecting that Lessor does not incur costs that it would atkerwise have incured if leasing the same space toa new tenant {for example, marketing costs Lessee accounts for the modification asa separate Tease, separate from the original 16year lease. This is because the modification grants Lessee an additional right to use an underlying asset, and the increase in consideration for the lease is commensurate with the standalone price of the additional rightofuse adjusted to reflect the circumstances of the contract. In this example, the additional underlying asset is the new 3,000 square me office space, Accordingly, at the commencement date of the new lease (at the end of the second quarter of Year 6), Lessee recognises a rightofuse asset and a lease liability relating to the lease ofthe additional 3,000 square metres of office space, Lessee does not make any adjustments to the accounting for the original lease of 2.000 square metres af office space asa result of this modification sof Example 16—Modification that increases the scope of the lease by ‘extending the contractual lease term ese enters into a T,year lease for 500 square metres of office space. The annual lease payments are CU00000 payable atthe end ofeach year. The interest rate impli inthe lease canner be readily determined. Lese's incremental borrowing rate atthe commencement date i 6 percent per annum. At the beginning of Year 7, Lessee re to amend the original lease by extending the contractual ease term by four years, The annual lease payments are unchanged fr CU100.000 payable atthe end of each year from Year 7 to Year 14. Lessee’ incremental borrowing rate atthe beginning of Year? 187 per cent per annum ad Lesor 6 Atte effective date ofthe modification fat the beginning of Year 7), Lessee remeasures the lease iability based on: (a) an eightyear remaining lease term, (b) annual payments of CU100,000 and (c}Lessee's incremental borrowing rate of 7 per cent per annum, The modified lease Hability equals (CU587.130. The lease Liability immediately before the modification including the recognition of the interest expense until the end of Yer 6) is (CU346.511, Lessee recognises the difference between the carrying amount of the modified lease ability and the carrying amount of the lease liability immediately before the modification (CU250,619) as an adjustment to the ightofuse asset. © IFRS Foundaton 2Example 17—Modification that decreases the scope of the lease Lessee enters ito a 10year lease for 5000 square metres of afce space, The anal lease payments are CUS0,000 payable at the end of each year. The interest rate implicit sn the Tease cannot be readily determined. Lese' ince 186 per cent per anmum. At the beginning. of Year 6, lessee and Lessor agres to amend the orginal leas to reduce the space to only 2.500 square metres ofthe orginal space stating from the end ofthe fist quarter of Year 6, The annual fixed lease payments from Year 6 to Year 10) are CU30,000. Lese' incremental borrowing rate at the beginning of Year 6 i 5 percent per annum, al orrewing rate atthe [Av the effective date of the modification fat the beginning of Year 6), Lessee ‘remeasures the lease liability based on: a) fiveyear remaining lease term, (b) annual payments of CUI0.000 and (c) Lessee's incremental borrowing rate ofS per cent per annum. This equals ClN129,884 Lessee determines the proportionate decrease in the carrying amount of the righoFuse asset on the basis of the remaining right-oFuse asset (ie 2,500 square metres corresponding to 50 per cent of the original right-ofuse asset), 50 per cent ofthe premodification rightofuse asset (CU184,002) is CUS2,001 Fifty per cent of the premodification lease lability (CU210,618) is CU105,309. Consequently, Lessee reduces the carrying amount ofthe rightofase asset by (cus2.002 and the carrying amount of the lease libility by CU105.308, Lessee recognises the difference between the decrease in the lease liability and the decrease in the rightofuse asset (CU105,309 ~ CU92,001 = CU13,308) aa gain in profit or loss at the effective date of the modification (at the beginning of Year 6) Lessee recognises the difference between the remaining lease liability of| (€U105,309 and the modified lease liability of CU129.884 |which equals (24.575) as an adjustment to the rightofuse asset reflecting the change in the consideration paid for the lease and the revised discount rate Example 18—Modification that both increases and decreases the scope of the lease Lessee enters into a 10year lease for 2000 square metres of ace space, The an Tease payments are CU100,000 payable atthe end ofeach year. The interest rate implicit inthe Tease cannot be readily determined. Lesee’ rowing rate tthe commencement date i 6 percent per annum At the beginning of Year 6, Lessee and Lessor agre to amend the original fase to a) include an additional 1500 square metres of space inthe same busing starting from the beginning of Year § and (hy reduce 0 years to eight years. The annual fied payment for the 3500 square 150,000 payable atthe end ofeach year {rom Yeor 6 to Year 5). Lee’ incremental borrowing rate atthe beginning of Year 6 i 7 per cent per continued. a ‘IFRS Foundatoncontinued Example 18—Modification that both increases and decr of the lease 8 the scope The consideration forthe increases scape of 1500 square metres of space isnot commensurate with the standalone price for that increase adjusted to refer the circumstances ofthe contract. Consequently, Lessee das not acount for the inerease in scope that adds the right to use an additional 1500 square metres of spare seperate leat, the premodification rightofuse asset and the premodification lease lability in relation to the lease areas follows Lease aity ight Begining Lease Ending Bogioing balance interest payment bance balance expense var ow ow ou 4369 (00009 68DN68 728009 72601) sean 2 angio (00009 g2ns7s 6620873501) sea.anT a 47.258 100000) 558238 SHRAOT 73601) 515,206 4 3404 100000) 401732 515206 73.601) 44,608 § soe 100000 «28236 ©4808 2801) a6008 6 aeqon4 At the effective date ofthe modification fat the beginning of Year 6), Lessee remeasures the lease liability on the basis of (a) a threeyear remaining lease term, (b) annual payments of CU150,000 and (e) Lessee’ incremental borrowing rate of 7 per cent per annum. he modified liability equals €U393.647, of which (a) CU131,216 relates to the increase of (150.000 in the anmual lease payments from Year 6 to Yeat & and (b) CU262,431 relates to the remaining three annual lease payments of CU100,000 from Year 6 to Year 8 Decrease ip the lease cen, At the effective date ofthe modification (at the beginning of Year 6), the premodification rightoFuse asset is CUS6S.004, Lessee determines the proportionate decrease in the carrying amount of the right-ofuse asset based on the remaining rightofsuse asset forthe original 2,000 square metres of office space (ie a remaining three-year lease term rather than the original fiveyear lease term), ‘The remaining rightofuse asset for the original 2.000 square metres of ollice space is CUU220,802 (ie CUI268,004 = 5 «3 years At che effective date ofthe modification (at the beginning of Year 6}, the premodification lease liability is CU421,236, Tae remaining lease liability for the original 2,000 square metres of office space is U/267,30% (ie present value of three annual ease payments of CU100,000, discounted at the original discount rate of 6 per cent per annum continued © IFRS Foundaton FaExample 18—Modification that both Increases and decreases the scope of the lease Consequently, Lessee reduces the carrying amount of the rightofuse asset by (cu147.202 (CU368.004 - CU220.802), and the carrying amount of the lease liability by CU153.935 (CU421,236 ~ CU267,301), Lessee recognises the difference between the decrease in the lease liability and the decrease in the rightoFuse asset (CU153,935 ~ CU147,202 = CU6,793) a8 a gain in profit or loss at the effective date of the modification (atthe beginning of Year 6) Lease labiliy curs3.995 Rightotuse asset cura7.202 Gain cus.733 [Av the effective date of the modification (at the beginning of Year 6), Lessee recognises the effect of the remeasusement of the remaining lease liability reflecting the revised discount rate of 7 per cent per annum, which is (4,870 (CU267,501 ~ CU262,431), as an adjustment to the right-ofuse asset ‘ease lability cus.870 Rightot-use asset cus.e70 Increase in the lensed space Av the commencement date of the lease for the additional 1,500 square metres of space (at the beginning of Year 6}, lessee recognises the increase in ‘the lease liability related to the increase in scope of CU181,216 [ie present value of three annual lease payments of CU50,000, discounted at the revised interest rate of 7 per cent per annum) as an adjustment to the right-ouse asset. Rightot-use asset curst216 ease labilty cursi.216 The modified rightofuse asset and the modified lease lability in relation to the modified lease ate as follows Lease abilty ightatase asset Bosining «7% —‘Lease Ending Beginning Deprecia- Ending balance interest payment balance balance ton balance expense sharge ver vo ow ow ow ow oo 8 near 27588 (50000) arzOE aT CISTI Mase 7 mms 9H (3000 MoT MAR FIST STE 8 Moser ans _s0o00) = msmi6 ps6 : 28 ‘IFRS FoundatonSubleas 1S Example 19 Modification that is a change in consideration only Lesse enters into 105ear lease for 5,000 square metres of office space, At the beginning of Yea 6 Lesee and Lessor agre to amend the original lease for te remaining five years to reduce the leae payments from CU200,000 per year to CUSS,000| per year The interest rate implicit in the lease cannot be readily determined. Lesee's incremental borrowing rate a the commencement dae 6 percent per anna. lese's incremental borrowing rate atthe beginning of Year 6 is 7 per cent per annum The am sare payable atthe end of each year Tease pay At the effective date of the modification (atthe beginaing of Year 6), Lessee remeasures the lease liability based on: (a) a fiveyyear remaining lease term, {bj annual payments of CU95,000 and {c} Lessee’ incremental borrowing rate of 7 per cent per annum, Lessee recognises the difference between the carrying amount of the modified liability (CU389,519) and the lease liability immediately before the modification (CU421,236) of CUSI,717 as an adjustment to the rightoFuse asset es (paragraph B58) Examples 20-21 illustrate the application of the requirements in TFRS 16 for an intermediate lessor that enters into a head lease and a sublease of the same underlying asset. Example 20—Sublease classified as a finance lease Head Iease—An intermediate lessor enters into a fesear lease for 5,000 square metres of office space fhe head lease) with Entity A the head lesen, Sublease—At the beginning of Year 3, the intermedi metas of office space for ng Hee years ofthe head lease to a subese, te lessor subleases the 5000 square the intermediate lessor classifies the sublease by reference to the rightouse asset arising from the head lease, The intermediate lessor classifies the sublease asa finance lease, having considered the requirements in ‘paragraphs 61-66 of IFRS 16, continued © IFRS Foundaton 36