Final answer:
The correct answer is option d) not just when the lessee remeasures the right-of-use asset and lease liability for other reasons, but also whenever there is a change in the cash flows resulting from a change in the reference index or rate.
Step-by-step explanation:
For companies that prepare their financial statements in accordance with IFRS, a lessee must reassess variable lease payments that depend on an index or a rate not only when there is a lease modification or other reasons to remeasure the right-of-use asset and lease liability but also whenever there is a change in the cash flows resulting from a change in the reference index or rate. The concept of indexing is important in long-term business contracts, including lease agreements, as it provides protection against the erosion of value due to inflation. In the context of leases under IFRS, such variable lease payments are reassessed on a continuous basis to reflect current economic realities.
Contracts with automatic adjustments for inflation help to set a real price that accounts for changes in purchasing power over time. This indexing to inflation is commonly seen in government programs and private market contracts to mitigate the negative impacts of inflation. In countries with high inflation rates, most contracts, wage levels, and interest rates are indexed to retain purchasing power for all parties involved.
Overall, the process of indexing payments ensures the fair distribution of economic effects caused by inflation, thus maintaining the real value of the amounts paid and received over the life of a contract. When it comes to lease agreements under IFRS, lessees are required to stay vigilant about such changes and make adjustments accordingly, reflecting a dynamic approach to financial reporting.