15.9 Reassessment of option and increase in scope

A rental contract for 5 years with quarterly prepaid rent of € 25,000 paid in the beginning of each quarter. The underlying asset is available on January 1st 2020. The lease has an option for an extension of five years. When initially entering into the contract, it was considered not reasonably certain to exercise the option. The discount rate was set at 5%. In June 2024, the company decides to exercise the option and agrees on an increase in the lease area, so that the quarterly rent is increased from 25,000 pr. quarter to 32,000 per quarter, effective from July 1st 2024. The discount rate is now increased to 6% for the remaining rent.

In this case, there’s a reassessment of the exercise of the option, as well as, a modification (Increased lease area).

The change in the present value of 557,036 is recognized as a credit lease obligation and debited right of use on effective date July 1st 2023. Since the increase in rental space happens at the same time, it’s not necessary to decide whether the change is at a standalone price. The quarterly depreciation is changed from 22,320 to 27,349.

When the original lease before the change is entered as a new lease in Share Control, we can get the calculation result as shown below:

Open this original lease in SharePoint and click Log change. This change can then be registered as follows in Share Control Share Point add-in by using Log other changes.

The calculation will look as illustrated below:

The new value of the ROU asset on 01.07.2024 is now 601,676 (=9,116+592,560). The quarterly depreciation is changed from 22,320 (=7,4403) to 27,349 (=9,116.33). Click on the number “557,036” in the Change column to locate the new value of liability (606,733) on the effective date of the modification (July 1st 2024).

If the increased lease area is only available from January 1st 2025, then the change in lease liability and the associated ROU asset must be recognized at the time that the increased lease area becomes available, and depreciation of this also starts at this time. The change, however, related to the existing premises, is recognized on July 1st 2023.