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ASPE – Lease Modifications – Example notes to financial statements

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Because of the COVID-19 pandemic and its effects, many owners (lessors) have granted rent concessions to lessees, in the form of deferrals or waivers of lease payments. 

In this context, in November 2020, the Accounting Standards Board (AcSB) issued amendments to Section 3065, Leases, in Part II of the CPA Canada Handbook – Accounting (Handbook). 

The November 2020 CPA Canada Financial Reporting Alert ASPE alert presents the main objective of the amendments, highlights key changes and considers possible assurance implications.

In response to these changes, the Technical working group on ASPE – Financial accounting – Part II is proposing the following examples of notes to financial statements. 

The various levels of government may have implemented programs providing relief to both lessors and lessees (like the Canada Emergency Commercial Rent Assistance [CECRA]). Accounting for these transactions must be analyzed separately and is not addressed in the examples below.

Example - lessee
Context: 
The company has several operating leases (as a lessee). It has received rent concessions as a direct consequence of the COVID-19 pandemic, in the form of deferrals and waivers of lease payments. The conditions in paragraph 3065.11A are met for all the operating leases for which the company has received rent concessions, and it has chosen to use the practical expedient and account for the rent concessions in accordance with paragraphs 3065.11B and .11C. 

The company’s year-end is September 30, 2020, and it has elected to early adopt the amendments to Section 3065.
ACCOUNTING CHANGE [detailed version]
The company has applied the practical expedient in Section 3065, Leases to account for rent concessions received as a direct consequence of the COVID-19 pandemic.

The purpose of this new expedient is to provide relief on accounting for such rent concessions, in the form of deferrals or waivers of lease payments, by allowing the company to choose to not account for the rent concessions as a new lease when all of the following conditions are met:

  • The rent concession occurred as a direct consequence of the COVID-19 pandemic.
  • The total payments resulting from the rent concession are the same or less than the total payments required by the original lease contract1. 
  • Any reduction in lease payments affects only payments originally due on or before December 31, 2021.

The company has chosen to use the practical expedient for all the operating leases for which it received rent concessions meeting the above conditions. Consequently, the company continues to account for the leases consistent with the terms of the original lease contract and:

  • It recognizes a lease payable for the amount of lease payments deferred. As at September 30, 2020, these rent concessions resulted in the recognition of a $xxx lease payable.
  • It recognizes a gain due to a waiver of lease payments in net income in the period to which the lease payments relate. For the period ended September 30, 2020, these rent concessions resulted in the recognition of a $xxx gain.
 

In accordance with the applicable transition provisions, these amendments, which are effective for fiscal years ending on or after December 31, 2020 and which the company early adopted, have been applied retrospectively.

ACCOUNTING CHANGE [simplified version]
The company has applied the practical expedient in Section 3065, Leases to account for rent concessions received as a direct consequence of the COVID-19 pandemic.

The purpose of this new expedient is to provide relief on accounting for such rent concessions, in the form of deferrals or waivers of lease payments, by allowing the company to choose to not account for the rent concessions as a new lease under certain conditions.

All the operating leases for which the company received rent concessions meet these conditions, and the company has chosen to use the practical expedient. Consequently, the company continues to account for the leases consistent with the terms of the original lease contract and:
 
  • It recognizes a lease payable for the amount of lease payments deferred. As at September 30, 2020, these rent concessions resulted in the recognition of a $xxx lease payable.
  • It recognizes a gain due to a waiver of lease payments in net income in the period to which the lease payments relate. For the period ended September 30, 2020, these rent concessions resulted in the recognition of a $xxx gain.

In accordance with the applicable transition provisions, these amendments, which are effective for fiscal years ending on or after December 31, 2020 and which the company early adopted, have been applied retrospectively.


1 See paragraph 3065.11A(b) for additional information about this condition, in situations where a rent concession increases the payments required, and the increase solely reflects the time value of money.

Example - lessor
Context: 
The company has several operating leases (as a lessor). It granted rent concessions to some of its lessees as a direct consequence of the COVID-19 pandemic, in the form of deferrals and waivers of lease payments. The conditions in paragraph 3065.11A are met for all the operating leases for which the company granted rent concessions, and it has chosen to use the practical expedient to account for them. 

The company’s year-end is September 30, 2020, and it has elected to early adopt the amendments to Section 3065.
ACCOUNTING CHANGE [detailed version]
The company has applied the practical expedient in Section 3065, Leases to account for rent concessions granted as a direct consequence of the COVID-19 pandemic.

The purpose of this new expedient is to provide relief on accounting for such rent concessions, in the form of deferrals or waivers of lease payments, by allowing the company to choose to not account for the rent concessions as a new lease when all of the following conditions are met:
 
  • The rent concession occurred as a direct consequence of the COVID-19 pandemic.
  • The total payments resulting from the rent concession are the same or less than the total payments required by the original lease contract2
  • Any reduction in lease payments affects only payments originally due on or before December 31, 2021.

All the operating leases for which the company granted rent concessions meet these conditions, and the company has chosen to use the practical expedient. Consequently, the company continues to account for the leases consistent with the terms of the original lease contract and:

  • It recognizes a lease receivable for the amount of lease payments deferred. As at September 30, 2020, these rent concessions resulted in the recognition of a $xxx lease receivable.
  • It recognizes a loss due to a waiver of lease payments in net income in the period to which the lease payments relate. For the period ended September 30, 2020, these rent concessions resulted in the recognition of a $xxx loss.

In accordance with the applicable transition provisions, these amendments, which are effective for fiscal years ending on or after December 31, 2020 and which the company early adopted, have been applied retrospectively.

ACCOUNTING CHANGE [simplified version]
The company has applied the practical expedient in Section 3065, "Leases" to account for rent concessions granted as a direct consequence of the COVID-19 pandemic.

The purpose of this new expedient is to provide relief on accounting for such rent concessions, in the form of deferrals or waivers of lease payments, by allowing the company to choose to not account for the rent concessions as a new lease under certain conditions.

All the operating leases for which the company granted rent concessions meet these conditions, and the company has chosen to use the practical expedient. Consequently, the company continues to account for the leases consistent with the terms of the original lease contract and:
 
  • It recognizes a lease receivable for the amount of lease payments deferred. As at September 30, 2020, these rent concessions resulted in the recognition of a $xxx lease receivable.
  • It recognizes a loss due to a waiver of lease payments in net income in the period to which the lease payments relate. For the period ended September 30, 2020, these rent concessions resulted in the recognition of a $xxx loss.

In accordance with the applicable transition provisions, these amendments, which are effective for fiscal years ending on or after December 31, 2020 and which the company early adopted, have been applied retrospectively.


 See paragraph 3065.11A(b) for additional information about this condition, in situations where a rent concession increases the payments required, and the increase solely reflects the time value of money.

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