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IFRS 16: Manage Subsequent Amendments in Leases

IFRS 16: Manage Subsequent Amendments in Leases

27 novembre 2018

Marie-Laure Navelot


Marie-Laure Navelot, Consultant & Consolidator Trainer for Amelkis





Several events can occur during the life of a contract. I counted six, which I have individualized, of course they can come in combination of each other. I propose to examine them one after the other.

  • - The first event is simply the termination of the contract before the end of the planned date. In these cases, all the items remaining in the balance sheet, ie the net assets of user rights minus all the depreciation allowances that we spent and then the remaining debt, are recycled in results. That is to say, we will see the asset in loss and the liability, the debt, in products. We will have a net result.


  • - The second event that may occur is a change in the duration of the contract. The duration of the contract is a fundamental element in the calculations and valuations that have been made, so any change over time implies a substantial modification of the contract and in particular of its determining element which is the discount rate. So in case of modification of the duration of the contract it is necessary to redo all the calculations on the date of modification but by using a revised modified discount rate ie the discount rate which we calculate on the date of occurrence of the event.


  • - Another component of discounting calculations that can be modified is the exercise of the call option. In a purchase option contract we may have made the calculations considering that we will not lift the call option. We do not exercise it, so we must redo all the calculations considering that we will not exercise the option to buy. If during the life of the contract we change our mind for a reason of our own, then we will reintroduce into the financial data of the contract, an element that constitutes the calculation of the rate. At the date of occurrence, all calculations must be made again taking into account the call option and we use a revised discount rate, which is the discount rate at the date of occurrence of the purchase option. the event.

Short summary: When we modify material elements of the contract, namely the duration or the exercise of the call option, we redo the calculations with a revised discount rate. The rate on the day of occurrence of the event.

  • - Fourth event that may occur, is the change in the amount of rent under an index rent.
    • Small reminder, in the IFRS16 standard have retirement rents that are based (fixed rents) and then variable rents but which are based on the variation of an index. Beware remember in IFRS16, we do not retreat the portion of rents that is linked to a KPI, that is to say, a performance indicator of the company. If there is a portion of the rent that is related to the turnover or the progress of the company, this portion of rent that year is not restated in IFRS16. So when we talk about rent modification in IFRS16, it means that it refers to the portion of rents that is based on an index (construction rate index or other index but which is completely independent of the activity of In this context, all the calculations must be redone on the date of occurrence of the event while continuing to use the initial rate that was used to make all the discounting calculations.


Why are we using the initial rate and not a revised rate? Because in reality there is no change of substances in relation to the contract. Namely, the contract in its substance has not changed, simply the rents follow the evolution of an index is so vary on a certain periodicity.

  • - The fifth event that we can list is the reduction of the right of use and rents related thereto.
    In what context can this happen? Simple example: you rent a platform of 1000 m² for your offices in a certain place and then after a while you realize that it is much too big. You negotiate with the landlord to rent only 700 m² and therefore return the use of 300 m² which you no longer use. In this context there will be an amendment to the contract a decrease in the right of use and a decrease in rents related thereto. I do not change the substance of my contract which means that we must redo all calculations, the date of occurrence of the event but always using the discount rate that I initially determined for my contract.

Summary: When the rents are changed due to an index evolution or my right of use decreases and the rents related thereto decreases too, we are in two cases where we should not change the initial content of the contract, so continue to use the initial discount rate.

  • - Finally last case that can occur. An increase in user fees and an increase in rents related thereto. Let's take a counterpoint to the previous example: you rent an office space and finally you realize that this surface is not enough and that the staff starts to to be a little cramped. You expand the rented area, and at that point you create a new lease. So for all the additional area you will do a reprocessing on the date of signing the rider on the basis of a discount rate that you calculated on the day of the event.


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