Question

Which of the following is true related to lease modification accounting? a. Depending on the circumstances, a lease that has been modified may be accounted for as one combined lease of both the original and new lease terms and conditions. b. Only the lessee must reconsider the classification and accounting of a lease that has been modified with the lessor. c. A lease modification that requires a lessor to revisit accounting may include the lessee changing its mind about rights contained in the original lease, such as extending a lease term. d. Changing the timing of the lease payments is not considered to be a lease modification.

Answer 1

The true statement about lease modification accounting is that a modified lease may be accounted for as one combined lease, involving reassessment by both lessee and lessor and potentially leading to a change in lease classification and remeasurement of liabilities and assets. The correct answer is (a).

Step-by-step explanation:

Regarding lease modification accounting, the correct statement is: Depending on the circumstances, a lease that has been modified may be accounted for as one combined lease of both the original and new lease terms and conditions.

This means that when there is a lease modification, both the lessee and lessor must reassess the classification and accounting of the lease, which can lead to the remeasurement of lease liabilities and assets and a possible change in the lease classification.

Changes that might trigger this reassessment include altering the lease term, changing the scope of the lease (e.g., adding or terminating the right to use one or more underlying assets), or changing the consideration for the lease. Adjusting the timing or the amount of lease payments is indeed considered a lease modification.

Answer 2

The true statement about lease modification accounting is that a modified lease may be accounted for as a combined lease of both original and new terms, which is applicable to both lessee and lessor.

Step-by-step explanation:

The correct answer related to lease modification accounting is: a. Depending on the circumstances, a lease that has been modified may be accounted for as one combined lease of both the original and new lease terms and conditions. This means that when certain conditions are met, such as the lease modification granting an additional right of use to the lessee that was not part of the original terms, or changing the lease term significantly, the lessee and lessor may account for the lease modification as a new lease or as a continuation of the existing lease, but with altered terms.

Option b is incorrect because both the lessee and the lessor need to reconsider the classification and accounting of a lease when it has been modified; it's not limited to just the lessee. Option c is partially correct in the sense that a lease modification might require revisiting accounting, but it is not specific to the lessee changing its mind. The lessor also has to consider changes as a result of the modification. Lastly, option d is incorrect since changing the timing of lease payments can indeed be considered a lease modification if it results in a substantially different lease agreement.