Journal entries for remeasurement and adjustments in Lease and Asset Accounting

  • Lease term is extended.

    Lease Accounting uses these actions:

    • Debit right-of-use asset and credit lease liability.
    • Adjust the amortization of the lease to straight line the new remaining amount.

    Asset Accounting uses these actions:

    • Adjust the asset value.
    • Adjust depreciation going forward based on the new book value.
  • Lease term is reduced.
    • Debit the lease liability and credit the assets.
    • Lessee changes decision relative to exercising purchase option similar to reducing the lease term above.
  • Full lease termination
    • Debit lease liability and credit assets for termination amount or full lease amount multiplied by the carrying amount of asset.
    • Debit/Credit Gain/Loss for difference
  • If, after remeasurement, the lease is no longer classified as a finance lease but is now an operating lease, then an additional journal entry must be created:

    (new carrying amount of the asset) – (original carrying amount of the lease)

    Same journal entry as a rent prepayment or lease incentive.