Lease accounting, lease period extended after year 1 – Journal entries

Details for lease accounting for lease extension

Let us assume the following details for lease accounting:

Lease start date: 1-Apr-2019

Lease end date: 31-Mar-2024

Lease payments: Rs. 2,75,000

Payment frequency: Annual – payable at the end

Incremental borrowing rate: 9%

Lease extension on 1-4-2020:

Lease Modification effective date: 1-Apr-2020

Lease end date extended up to: 31-Mar-2026

All other terms remain the same

When the lease is modified without any increase in the scope of the lease then lease liability and the right-of-use are recomputed on the effective date of such modification. This would result in amortising an additional amount and the finance charges based on the revised lease liability should be recomputed.

Right-of-use

Extension of Lease period known on 1-Apr-2020

Lease extended to 31-Mar-2026 (from 31-Mar-2024)

Recognition of Lease liability

Impact of Lease extension:

Amortisation of Right-of-use

Revised table of amortisation:

Finance cost

Impact of lease extension:

Trial balance

Profit and Loss Account

Balance Sheet

Lease Accounting Software

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