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clair_sheffield
#1 Posted : 05/09/2018
Joined: 2/24/2018(UTC)
Posts: 2

Hi

How do I account for a rent-free period in a lease? For example, a 40 year lease with a rent holiday for the first 2 years.

IAS17 and IRFS16 seem to indicate that lease transactions should match the benefit derived from the asset, so therefore spread the incentive over the lease term not the payment term. For the service this would lead to a general fund charge hitting budgets during the payment holiday, and only corporate cash flow would benefit from the incentive.

Is this correct, or is there a way to manage it on balance sheet until the payments commence?

Any help gratefully received!!

Thanks
Clair
MW
#2 Posted : 06/09/2018
Joined: 2/24/2018(UTC)
Posts: 70

Was thanked: 3 time(s) in 2 post(s)
You're correct and would have to accrue for the cost of the lease during the rent free periods.
John Everson
#3 Posted : 06/09/2018
Joined: 2/24/2018(UTC)
Posts: 21
Organisation: Dudley Metropolitan Borough Council

Agree with MW. The substance of the arrangement is that the first two years' rent has been deferred and is included in the rent for years 3-40 so an appropriate creditor accrual needs to be made. Subject to materiality of course.
clair_sheffield
#4 Posted : 07/09/2018
Joined: 2/24/2018(UTC)
Posts: 2

Thanks for the responses :)
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