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Accounting for surrender & new lease under ifr16?s

Lease with 7yrs left is being surrendered and new lease taken for existing site and adjacent suit

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At present there is a book value of 134k and lease liability if £144k.

Instintivey I want to post a 9k gain on lease termination (p&l) and then calculate the Ifrs assets liability for the new lease in the normal fashion.

However from looking at notes it seems I may have to treat the oriental lease as being extending and discount form when new terms were agreed, while the new space would be from when occupation took place.

I guess it would depend on whether the lease is one figure for whole new area or split.

 

Any thoughts?

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By paul.benny
01st Oct 2021 07:08

If you've got a mismatch between right-of-use asset and the associated liability, something has gone awry.

I'd reset by booking the gain as you suggest - and establishing why the asset and liability have got out of balance so you don't have the same problem for the new lease.

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Replying to paul.benny:
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By Bobbo
01st Oct 2021 09:23

A difference between the ROU asset and the associated liability is exactly what you would expect. If they were the same i'd suggest somebody had bodged the numbers.

ROU asset being depreciated straight line over lease length but the 'interest' on the lease liability means that the liability reduces slower in the early years or the lease but picks up towards the end.

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Replying to Bobbo:
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By paul.benny
01st Oct 2021 09:49

Yes, you're right. The dangers of posting with insufficient morning coffee.

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