Question

How do the terms and the accounting part of the lease change if the two parties agree to a three year renewal? Do the payments. interest, or amortization change at all?

Answer 1

Terms and the accounting part of the lease change if the two parties agree to a three year renewal:-

Lessee accounting:-

Remeasure the lease liability to reflect the modified terms using a revised discount rate determined at the modification date. Recognize the corresponding adjustment to the ROU asset.

Lessor accounting

Operating :-

• Account for the lease modification as a termination of the original lease and creation of a new lease from the effective date of the modification.
• Measure the carrying amount of the underlying asset as the net investment in the original lease immediately before the effective date of the modification.

Finance:-

• Modification is substantial. Derecognize the original financial asset and recognize the modified asset as a new financial asset at fair value plus eligible transaction costs.
• Modification is not substantial. Do not derecognize the financial asset; instead, remeasure the asset by discounting the modified contractual cash flows. Any difference between this recalculated amount and the existing gross carrying amount is recognized in profit or loss as a modification gain or loss.

Conclusion:- Yes the payments.  interest, & amortization changes.