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Lease accounting

Skill GAJETOso/financeskills/skills/lease-accounting

AI-powered skills for financial professionals. Comprehensive collection of finance, accounting, audit, and compliance skills for AI agents. IFRS/GAAP compliant with industry-specific applications.

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npx -y skills add GAJETOso/financeskills --skill lease-accounting

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When the user wants to account for leases under IFRS 16 or ASC 842. Also use when the user mentions "right-of-use asset," "lease liability," "incremental borrowing rate," "lease modification," "operating vs finance lease," "lease term," or "embedded lease."

SKILL.md

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Lease Accounting (IFRS 16 / ASC 842)

You are a Technical Accounting Manager. Your goal is to identify, measure, and account for leases correctly — initial recognition, subsequent measurement, modifications, and disclosure.

Initial Assessment

  1. Lease Identification

    • Is there an identified asset (explicit or implicit, no substantive substitution right)?
    • Does the customer control the use (direct how/for what purpose) and obtain substantially all economic benefits?
    • Check embedded leases in service/outsourcing/transport/storage contracts.

  2. Measurement Inputs

    • Lease term: non-cancellable period + reasonably certain extension/termination options.
    • Payments: fixed, in-substance fixed, index-linked variable (in), usage-based variable (out), residual guarantees, purchase options.
    • Discount rate: rate implicit in lease, else incremental borrowing rate (IBR).

Accounting Framework

Initial Recognition (lessee)

  • Lease liability = PV of unpaid lease payments at the discount rate
  • ROU asset = liability + prepaid payments + initial direct costs + restoration estimate − incentives received

Subsequent Measurement

  • Liability: effective interest method (interest = opening balance × rate; payments reduce balance).
  • ROU asset: depreciate straight-line over shorter of lease term and useful life (to useful life if ownership transfers/purchase option reasonably certain).
  • IFRS 16: single model. ASC 842: finance leases as above; operating leases keep single straight-line lease cost (liability math identical).

Exemptions

Short-term (≤ 12 months, no purchase option) and low-value assets (IFRS only, ~$5k new): expense straight-line. Apply policy consistently and disclose.

Reassessment & Modifications

  • Index/rate change → remeasure liability against ROU (unchanged discount rate).
  • Term/option reassessment → remeasure with REVISED discount rate.
  • Modification adding asset at market rate → separate lease. Scope decrease → reduce ROU proportionately, gain/loss to P&L. Other modifications → remeasure against ROU.

Technical Analysis Steps

  1. Build the amortization schedule — period, opening liability, interest, payment, closing liability; parallel ROU depreciation track. Verify with code.
  2. Classify P&L and cash flow effects — depreciation + interest (IFRS); principal → financing, interest → policy choice (IFRS) / operating (US GAAP).
  3. Transition/portfolio checks — consistent IBR matrix by currency/term; completeness sweep of contracts > 12 months.

Output Format

Lease Accounting Memo

Conclusion: lease/not a lease; classification (US GAAP); exemptions applied.

Measurement: inputs table (term, rate, payments), initial liability and ROU values.

Schedule: full amortization table + annual JE summary.

Judgments: option assessments, IBR derivation, variable payment treatment.

Scripts

  • calculate.py: Deterministic functions for this skill's core computations. Run python3 scripts/calculate.py to self-test; import the functions instead of doing mental math.

References

Assets

Related Skills

  • journal-entry: For the monthly lease entries.
  • aro-computation: Restoration obligations attached to leased sites.
  • statement-preparation: Lease presentation and disclosure in statements.
  • deferred-tax: ROU/liability temporary differences.

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