Cancellation of rent expense straight-lined over the term of lease
This method spreads total rent evenly across the full lease term. It applies the matching principle by recognizing rent expense over the period in which the leased asset is used.
This approach was required under IAS 17.
For each accounting period after the lease commencement date, the system calculates the rent expense as follows:
• Start with the total forecasted rent payments for the lease.
• Divide this amount across the lease term.
• Adjust the result for any accumulated differences between actual payments and recognized expenses from earlier periods.
This produces a consistent rent expense amount over the lease term while tracking timing differences between payments and expense recognition.
Example 1: lease with quarterly payment
Start date: | 01 Apr 2023 |
End date: | 30 Mar 2028 |
Duration: | 5 years (20 quarters, 60 months) |
Payments
Start date | End date | Payment per | Total duration | Total amount |
|---|
01 Apr 2023 | 30 Mar 2028 | 30,000.00 per quarter | 20 quarters | 600,000.00 |
| | | Total | 600,000.00 |
Straight-lining from 01 Apr 2023:
600,000.00 divided by 60 months = 10,000.00 per month
Control:
Total payments: 30,000.00 * 20 = 600,000.00
Total expenses: 10,000.00 * 60 = 600,000.00
Example 2: lease with quarterly payment and 3 months free rent
Start date: | 01 Apr 2023 |
End date: | 30 Mar 2028 |
Duration: | 5 years (20 quarters, 60 months) |
Payments
Start date | End date | Payment per | Total duration | Total amount |
|---|
01 Apr 2023 | 30 Mar 2023 | 0.00 per quarter | 1 quarter | 0.00 |
01 Jul 2023 | 30 Mar 2028 | 30,000.00 per quarter | 19 quarters | 570,000.00 |
| | | Total | 570,000.00 |
Straight-lining from 01 Apr 2023:
570,000.00 divided by 60 months = 9,500.00 per month
Control:
Total payments: 30,000.00 * 19 = 570,000.00
Total expenses: 9,500.00 * 60 = 570,000.00
Example 3: Example 2 is indexed by 1% on 01 Jan 2024
Indexation date: | 01 Apr 2023 |
End date: | 30 Mar 2028 |
Remaining duration: | 17 quarters, 51 months |
Payments
Start date | End date | Payment per | Total duration | Total amount |
|---|
01 Jan 2024 | 30 Mar 2028 | 30,300.00 per quarter | 17 quarters | 515,100.00 |
| | | Total | 515,100.00 |
Straight-lining follow-up as per 31 Dec 2023:
Total straight-lined expense from 01 Apr 2023: 9,500.00 * 9 = 85,500.00
Total payments from 01 Apr 2023: 60,000.00
Balance ‘Expense against payments’: 60,000.00 - 85,500.00 = -25,500.00
Remaining expense to straight-line: 515,100.00 – 25,500.00 = 489,600.00
Straight-lining from 01 Jan 2024:
489,600.00 divided by 51 months = 9,600.00 per month
Control:
Total payments:
30,000.00 * 2 | 60,000.00 |
30,300.00 * 17 | 515,100.00 |
| 575,100.00 |
Total expenses:
9,500.00 * 9 | 85,500.00 |
9,600.00 * 51 | 489,600.00 |
| 575,100.00 |