Reduction In Lease Term Incorrectly Generates Lease Gain Entry under ASC842 (Doc ID 2896731.1)

Last updated on FEBRUARY 08, 2024

Applies to:

Goal

Two questions relating to lease amendments:

Question 1: When amending a lease with "Decrease in scope" as the type of amendment to reduce the lease term and change in discount rate, system is generating a gain and loss accounting entry, in the lease revision accounting event which seems the intended functionality as per Oracle documentation.  However, as per the accounting guidance ASC 842, a reduction in the lease term is not considered a decrease in scope, also the discount rate should be changed and no gain or loss should be recognized unless the ROU is reduced to zero.

Question 2: When amending a lease with “No scope change”, the discount rate could not change, which is a requirement to remeasure the lease liability. It seems the system is not appropriately accounting for this scenario.

Is it possible to change the discount rate and reduce/amend lease term, without any gain/loss recognition by selecting the "No scope change" option during lease amendment ?

Solution

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