How to handle reassessment and modifications

Important!
Get to know the IFRS 16 standard with its definitions for reassessments and modifications and its suggestions of accounting. House of Control AS can only give you a short summary here and will take no responsibility for any changes to rules and regulations.

Reassessments

Reassessments can be necessary if you made changes to the lease payments to an ongoing contract. These changes shall have their origin in the conditions of the original contract.

Tip!
If you need to enter changes before initial reporting, you can simply delete the initial assessment and re-enter it. See How to perform a new initial assessment.

Tip!
As long as the reporting period isn't closed, you can delete a reassessment by clicking Delete next to it.
To delete several reassessments on a contract, simply delete the first of them. Later reassessments are deleted automatically.
To bulk-delete assessments on several contracts, open the affected contracts from the contract list (tick the checkbox next to them and click Edit). Under Lease assessments, pick Delete all assessments.

  1. Go to Contracts and open the contract that needs reassessment in the list. Switch to editing mode.

  2. Perform the necessary changes.

  3. Click Add reassessment.

  4. Enter a Description of the changes.

  5. Only if this is a sublease: Enter the field Changes to right of use for asset in headlease:  Possible approaches include:

    • using the percentage of the area subleased that relates to the ingoing RoU asset for the period when the sublease begins,

    • performing a more detailed assessment to determine the correct proportion (for example, having an expert assess the value of the subleased area), or

    • simply using the same value as the net investment in the lease.

    If the value entered differs from the net investment in the lease, the system shows a gain or loss on the sublease. This method applies to both the initial assessment and any reassessments under subleases.

  6. Enter the Date:

    If you reassess the contract: The date you got aware of the change.

    If you modify the contract: The date you agreed on the change with the lessor.

  7. The reassessment will be added as a new line below the initial assessment. You can view general information, date and the changes that provoked reassessment.

  8. Click Save.

The reassessment is registered and displayed in the list below.

If reassessment is necessary because of index adjustments and changes to the interest tables, the system can handle this type of adjustment alone.

Tip!
For automatic handling of the consumer price index and interests, you must have the optional module Consumer Price Index. The table with the interest rates must be created and updated manually. Your regular contact person at House of Control AS can tell you more about this extension.

Other possible changes are changes to the lease payments as a result of a changed leasing period, changes to the purchase option or expected payments based on the residual value guarantee. If the changes are based on changes to the flexible interests, you can change the discount rate.

Modifications

IFRS 16 Leases contains detailed guidance on how to account for lease modifications. A lease modification is defined as a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease. A lease modification includes adding or terminating the right to use one or more underlying assets or extending or shortening the contractual lease term.

A lease modification is accounted for in one of two ways:

  1. It is treated as a separate lease (IFRS 16.44); or

  1. It is not treated as a separate lease (IFRS 16.45-46).

A modification will only be treated as a separate lease if it involves the addition of one or more underlying assets at a price that is commensurate with the standalone price of the increase in scope. All other modifications are not treated as a separate lease.

If a modification is a separate lease, a lessee applies the requirements of IFRS 16 to the newly added asset independently of the original lease. The accounting for the original lease continues unchanged.

In contrast, if a modification is not a separate lease, the accounting reflects that there is a linkage between the original lease and the modified lease. The existing lease liability is remeasured with a corresponding adjustment to the RoU asset on the effective date of the modification.