How to account for lease terminations?

When a lease is terminated in its entirety, there should be no remaining lease liability or right-of-use asset. Any difference between the carrying amounts of the right-of-use asset and the lease liability should be recorded in the income statement as a gain or loss; if a termination penalty is paid, the lessee should allocate the termination penalty to the remaining lease. 

Occupier will calculate the appropriate entries for termination fees and to de-recognize the ROU asset and the lease liability.

Reasonable Certain To Exercise Termination Option:

• • Include any termination fees in lease payments 
  • Lease term should be only for expected  lease term (excluding the termed period)
  • Amortization schedule at onset will include termination fees & lease term, no termination journal entry with a gain or loss will be recorded 

To learn how to terminate in Occupier, click here.