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Modification and remeasurement of a lease

The single lease expense would be recalculated using the following formula.

Future undiscounted net cash flows at the remeasurement date + (the right-of-use
asset - the lease liability immediately after the remeasurement)

Remaining lease term

$4,000,000 + ($3,483,248-
$3,723,248 = $940,000 single lease expense
4

5.4 Lessee reassessment of the short-term lease
measurement and recognition exemption

A lessee should reassess whether a short-term lease continues to qualify for the short-term lease
measurement and recognition exemption when any of the following events occur:

□ The lease term changes because it becomes reasonably certain that the lessee will exercise its
renewal option such that, after the change, the remaining lease term extends more than 12 months
from the end of the previously-determined lease term

□ The lease term changes because it becomes reasonably certain that the lessee will not exercise a
termination option such that, after the change, the remaing lease term extends more than 12
months from the end of the previously determined lease term

□ The lessee becomes reasonably certain to exercise its option to purchase the underlying asset

If the lease no longer meets the requirements for the short-term lease measurement and recognition
exemption, the lessee should apply the guidance discussed in LG 3 to determine the lease
classification.

See LG 2.2.1 for information on the short-term lease measurement and recognition exemption.

5.5 Accounting for a lease termination – lessee

When a lease is terminated in its entirety, there should be no remaining lease liability or right-of-use
asset. Any difference between the carrying amounts of the right-of-use asset and the lease liability
should be recorded in the income statement as a gain or loss; if a termination penalty is paid, that
amount should be included in the gain or loss on termination.

If a lessee continues to use the asset for a period of time after the lease termination is agreed upon, the
termination should be accounted for as a lease modification based on the modified lease term (through
the planned lessee exit date). For example, if the lessee and lessor agree to terminate a lease in six
months with a termination penalty, the lease should be accounted for as a modified lease with a six-
month term.

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