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Dear Experts,

Under ASC842, Variable rents linked to Indexes are to be capitalised into ROU,Liability upfront to the extent they are known.
Any subsequent changes to these rents are to be expensed off unlike IFRS16, where they have to be considered into remeasurement.

My question is that to expense it or capitalise, is that an elective? Can USGAAP customers capitalise and remeasure Liability and ROU like IFRS16 or is it mandatory to 'Expense' if off only?

Example 25 (ASC 842-10-55-226 to 231) addresses this issue.  Paragraph 231 states: Because Lessee has not remeasured the lease liability for another reason, Lessee does not make an adjustment to the lease liability to reflect the Consumer Price Index at the end of the reporting period; that is, the lease liability continues to reflect annual lease payments of $100,000 (8 remaining annual payments of $100,000, discounted at the rate of 8 percent is $574,664). However, the Year 2 payment amount of $102,400 (the $100,000 annual fixed payment + $2,400 variable lease payment) will be recognized in profit or loss for Year 2 of the lease and classified as cash flow from operations in Lessee’s statement of cash flows. In its quantitative disclosures, Lessee will include $100,000 of the $102,400 in its disclosure of operating lease cost and $2,400 in its disclosure of variable
lease cost.

Based on this guidance, it is not elective.  It is expensed, not capitalized.


I am pasting from 3 sources, where the understanding is that remeasurement is not needed in USGAAP. Can you please provide your thoughts on these:

KPMG Advisory

Remeasurement assessment for leases tied to an index or rate
Lessees remeasure the lease liability for changes in variable lease payments based on an index or rate on the date when there is a change in the contractually required cash flows. Adjustments to an index or rate do not constitute a reassessment event. Dual reporters will have to separately track the remeasurement assessment for leases that are tied to an index or rate.


5: Lease Liability
Finally, under IFRS, lessees are required to remeasure their lease liability for any changes in future payments. Therefore, for leases with payments tied to an index, each time there is a change in the index, the Company will be required to remeasure the lease liability. For example, a lease that is based on CPI will require the lessee to remeasure the lease liability and ROU asset every time CPI is adjusted.
With US GAAP, the lease liability is calculated based on the future fixed lease payments, plus any variable lease payments that are subject to an index or rate. The lease liability is calculated based on the index as of the measurement date, and then any fluctuations are recognized as variable payments in the current period. For example, if in year 2 of the lease, the lease payments increased by $50 because of a change in CPI, the lessee should recognize the additional $50 in current period profit/loss and not reassess the lease liability.
For companies that report in both US GAAP and IFRS, this difference can be a time consuming, so it is important that a company select a software that can easily account for the leases under both US GAAP and IFRS concurrently.

Lucanet-IFRS16 Vs USGAAP:

Remeasurement of the Lease Liability due to Changes in an Index or Rate In both standards, the lease liability is measured by the lessee using the effective interest method and remeasured to reflect any lease modifications and changes in the lease payments. IFRS 16 also requires the lessee to remeasure the lease liability due to changes in variable lease payments based on an index or rate at the date of the change. Under ASC 842, changes in an index or rate alone do not require a remeasurement of the lease liability.

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