Periodic Compound Interest Calculations in 24D and Later Releases (Doc ID 3059402.1)

Last updated on DECEMBER 03, 2024

Applies to:

Goal

Lease accounting, in accordance with IFRS 16 and ASC 842, calculates the right-of-use and liability balances by discounting the contractual lease payments using a discount rate.

Once the liability balance has been calculated, interest expense is calculated by amortizing the balance over the lease term based on the lease payments and the discount rate.
On the other hand, the right-of-use amortization balance and the lease term are used to calculate the right-of-use amortization expense.

Until 24C, lease accounting supported the daily interest method for calculating right-of-use and liability balances, as well as liability interest expense.

In version 24D, new functionality has been introduced to support the periodic compounding method.

The purpose of this note is to provide a brief explanation of how periodic compounding is applied to leases to calculate liability and right-of-use balances,
as well as interest and right-of-use expenses.

Solution

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