Cancellation of rent expense straight-lined over the term of lease
Straight-lining rent expense over the term of the lease applies the matching principle considering the term of the lease as the period of reference for the total payment over that term to be recognized as matching expenses.
Is the method that was applied as per IAS 17.
For any accounting period from the commencement date of the lease, the periodic rent expense is equal to the sum of the forecasted rent payment divided by the remaining periods, adjusted by any remaining accumulated payment or expense from the previous periods.
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 |