IFRS 16 Lease Discount Rate
This free, guided checker walks your finance team through the key decision points for IFRS 16 Lease Discount Rate. Answer a few questions to see the likely treatment and the evidence to document.
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IFRS 16 Lessee Lease Modification
This free, guided checker walks your finance team through the key decision points for IFRS 16 Lessee Lease Modification. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
Has the enforceable scope or consideration of an existing lessee lease changed by contract amendment?
A lease modification (IFRS 16 Appendix A) is a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions and results from renegotiation with the lessor. Test whether the lessor agreed a new right or a new price: a re-priced index, a CPI uplift, or the exercise of an option already in the contract is a reassessment under IFRS 16.40-43, not a modification. The common trap is treating every payment change as a modification and applying the wrong discount-rate rule.
Use the interactive tool above to see how this applies to your situation.
Official guidance: IFRS issued standards
Was the change a rent concession rather than a scope or term amendment?
A lessee may elect the practical expedient in IFRS 16.46A not to assess whether an eligible rent concession is a lease modification, provided the IFRS 16.46B conditions are met (the revised consideration is substantially the same as or less than the original, any reduction affects payments originally due within the eligibility window, and no other substantive terms change). Weigh the concession agreement and the timeline of the affected payments. The common trap is applying the expedient to concessions that fall outside the eligibility conditions - those are accounted for as modifications under IFRS 16.44-46.
Evaluate rent concession practical expedient versus full modification accounting.
Official guidance: IFRS issued standards
Has a reassessment of lease term or variable payments been triggered without contract change?
Reassessment applies when the contract is unchanged but a trigger arises: IFRS 16.40 covers a change in the lease term or in the assessment of a purchase option (remeasure using a revised discount rate), while IFRS 16.42-43 cover residual value guarantee changes and index- or rate-driven payment changes (remeasure using an unchanged discount rate, except a floating-rate change). Confirm which trigger applies before selecting the discount rate. The common trap is using a revised discount rate for a CPI uplift, which IFRS 16.43 does not permit.
Remeasure the lease liability for the reassessment trigger and adjust the right-of-use asset, applying the revised or unchanged discount rate per IFRS 16.40-43. No lessee modification or reassessment is triggered; the existing lease accounting continues unchanged (IFRS 16.44; IFRS 16.40).
Official guidance: IFRS issued standards
Does the modification increase the scope by adding the right to use one or more underlying assets?
IFRS 16.44(a) is the first of two cumulative conditions for separate-lease treatment: the modification must increase the scope of the lease by adding the right to use one or more underlying assets. Distinguish a genuine addition of an asset from a rent-only change or an extension of the existing asset's term. The common trap is treating a term extension as a scope increase - extending the period over an existing asset is not adding an underlying asset under IFRS 16.44(a).
Use the interactive tool above to see how this applies to your situation.
Official guidance: IFRS issued standards
Is the consideration for the increased scope commensurate with the standalone price adjusted for contract-specific circumstances?
IFRS 16.44(b) is the second cumulative condition: the consideration for the lease must increase by an amount commensurate with the standalone price of the scope increase and any appropriate adjustments to that standalone price for the circumstances of the particular contract. Support the standalone price with observable evidence (market rents, price lists) and document any contract-specific adjustment. The common trap is ignoring a volume or bundling discount - a substantive discount means the criterion fails and separate-lease treatment is unavailable.
Both IFRS 16.44 criteria are met; account for the scope increase as a separate lease at its own commencement date and leave the original lease unchanged (IFRS 16.44).
Official guidance: IFRS issued standards
Does the modification decrease the scope of the lease?
IFRS 16.46(a) applies to modifications that decrease the scope of a lease: the lessee first decreases the carrying amount of the right-of-use asset to reflect the partial or full termination and recognises a gain or loss, then remeasures the remaining liability. All other modifications are remeasured under IFRS 16.45 with a corresponding adjustment to the right-of-use asset. Weigh the modification agreement to confirm whether assets or term are being removed. The common trap is skipping the partial-termination gain or loss and only remeasuring the liability.
Use the interactive tool above to see how this applies to your situation.
Official guidance: IFRS issued standards
Has the partial termination gain or loss been calculated on the proportionate right-of-use asset and liability?
For a scope decrease, IFRS 16.46(a) requires the lessee to decrease the carrying amount of the right-of-use asset to reflect the partial or full termination and to recognise in profit or loss any gain or loss relating to that termination. A common approach reduces the right-of-use asset and lease liability in proportion to the reduction in the remaining right of use. Document the proportion used (for example floor area or remaining term). The common trap is remeasuring the liability first and forcing the difference into the asset without recognising the termination gain or loss.
Complete the proportionate partial-termination gain or loss under IFRS 16.46(a) before remeasuring the retained lease.
Official guidance: IFRS issued standards
Has the revised discount rate been determined at the modification effective date?
IFRS 16.45 requires a modification that is not a separate lease to be accounted for by remeasuring the lease liability using a revised discount rate determined at the effective date of the modification - the interest rate implicit in the lease if it can be readily determined, or otherwise the lessee's incremental borrowing rate at that date. Support the incremental borrowing rate with entity- and term-specific inputs (currency, remaining term, security). The common trap is reusing the original inception discount rate, which is only appropriate for certain reassessments, not for modifications.
Determine and document the revised discount rate (implicit rate or incremental borrowing rate) at the effective date before remeasuring under IFRS 16.45.
Official guidance: IFRS issued standards
Have revised lease payments including fixed, in-substance fixed, and residual guarantees been captured?
Remeasurement under IFRS 16.45 discounts the revised lease payments. Those payments comprise the components in IFRS 16.27: fixed and in-substance fixed payments, variable payments that depend on an index or rate, amounts expected to be payable under residual value guarantees, the exercise price of a purchase option if reasonably certain, and termination penalties if the term reflects termination. Reconcile the revised schedule to the signed amendment. The common trap is omitting in-substance fixed payments or residual value guarantee amounts from the revised schedule.
Complete the revised lease payment schedule under IFRS 16.27 before posting the IFRS 16.45 remeasurement.
Official guidance: IFRS issued standards
Has the right-of-use asset been adjusted with impairment testing if carrying amount would otherwise be negative?
Under IFRS 16.45 the remeasurement of the lease liability is applied as a corresponding adjustment to the right-of-use asset; where that adjustment would reduce the asset below zero, the excess is recognised in profit or loss. Because a right-of-use asset is within the scope of IAS 36 (IFRS 16.33), assess for impairment indicators, particularly on a scope decrease or deteriorating use. Weigh recoverable-amount evidence for the retained asset. The common trap is carrying a negative right-of-use asset instead of recognising the excess in profit or loss.
Adjust the right-of-use asset, recognise any amount below zero in profit or loss, and assess impairment under IAS 36 (IFRS 16.45; IFRS 16.33).
Official guidance: IFRS issued standards
Have prospective depreciation and interest schedules been updated from the modification date?
A lease modification is applied prospectively from its effective date. Depreciate the adjusted right-of-use asset over the revised lease term under IFRS 16.31, and accrue interest on the remeasured lease liability under IFRS 16.36 using the revised discount rate. Rebuild both schedules from the effective date and reconcile opening balances to the remeasurement workpaper. The common trap is restating prior periods - IFRS 16 modification accounting is not retrospective.
Regenerate prospective depreciation (IFRS 16.31) and interest (IFRS 16.36) schedules from the effective date before period close.
Official guidance: IFRS issued standards
Are IFRS 16 modification and lease movement disclosures prepared?
IFRS 16.53 requires disclosure of amounts such as depreciation by class of underlying asset, interest expense on lease liabilities, additions to right-of-use assets, and gains or losses arising from modifications and terminations; IFRS 16.58 requires a maturity analysis of lease liabilities applying IFRS 7.39 and B11. Trace the modification through the movement tables and the maturity profile. The common trap is disclosing the new liability balance without explaining the modification-driven movement or any gain or loss.
Modification accounting and the IFRS 16.53 and IFRS 16.58 disclosures are complete; proceed to reviewer sign-off. Complete the lease note movements, maturity analysis, and profit-or-loss disclosures for the modification (IFRS 16.53; IFRS 16.58).
Official guidance: IFRS issued standards
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