Page 181 - pwc-lease-accounting-guide_Neat

Modification and remeasurement of a lease

Residual
value
Year 3 lease Year 4 lease Year 5 lease guarantee
payment payment payment payment Total

Lease
payment $100,000 $100,000 $100,000 $10,000 $310,000

Discount 0 4,762 9,297 1,362 15,421

Present value $100,000 $95,238 $90,703 $8,638 $294,579

To calculate the adjustment to the lease liability, Lessee Corp would compare the recalculated and
original lease liability balances on the remeasurement date.

Revised lease liability $294,579
Original lease liability 285,941

$8,638

Lessee Corp would record the following journal entry to adjust the lease liability.

Dr. Right-of-use asset $8,638
Cr. Lease liability $8,638

Income statement impact

Lessee Corp would calculate the interest expense on the lease liability from the remeasurement date as
follows.

Remaining cash Annual lease
Year payments payment Liability balance Interest expense

3 $310,000 $100,000 $194,579 $9,729

4 $210,000 $100,000 $104,308 $5,215
5 $110,000 $100,000 $9,524 $476

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