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Modification and remeasurement of a lease
The following table summarizes information pertinent to the lease remeasurement.
Remaining lease term 4 years
Lessee Corp’s incremental borrowing rate at lease
commencement 5%
Right-of-use asset immediately before the remeasurement $3,497,534
Lease liability immediately before the remeasurement $3,437,534
To remeasure the lease liability, Lessee Corp would first calculate the present value of the future lease
payments for the remaining lease term (using the original discount rate of 5%). As shown in the
following table, the revised lease liability would be $3,723,248.
1/1/X2 1/1/X3 1/1/X4 1/1/X5 Total
Lease payment $1,000,000 $1,000,000 $1,000,000 $1,000,000 $4,000,000
Discount 0 47,619 92,971 136,162 276,752
Present value $1,000,000 $952,381 $907,029 $863,838 $3,723,248
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 $3,723,248
Original lease liability 3,437,534
($285,714)
Lessee Corp would record the following journal entry to adjust the lease liability.
Dr. Cash (for lease incentive received) $300,000
Cr. Right-of-use asset $14,286
Cr. Lease liability $285,714
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