Lease Accounting (ASC 842 / IFRS 16)

The lease accounting model runs on a small set of lease-level inputs. Each lease has a term, annual base payment, escalator rate, incremental borrowing rate, useful life, fair value, and payment timing (advance or arrears).

• There are also flags for ownership transfer, purchase option, and specialised asset, plus initial direct costs, prepaid rent, lease incentive, and variable payment percentage. These inputs feed every downstream calculation, so changing one lease flows through Day-1 measurement, classification, schedules, and the P&L.
• A standard toggle switches between ASC 842 and IFRS 16, and a scenario selector applies shifts to IBR, escalator, and short-term cutoff.

Day-1 lease liability equals the present value of all future lease payments, discounted at the lease's effective incremental borrowing rate. Payment timing matters: advance leases discount from period zero, while arrears leases discount one period later.

• The initial right-of-use asset then builds from that liability plus initial direct costs and prepaid rent, minus any lease incentive. Exempt leases—those meeting short-term or low-value criteria—are excluded and produce no ROU asset or liability.
• Classification tests compare term to useful life, Day-1 liability to fair value, and check ownership transfer, purchase option, and specialised asset flags to decide finance versus operating treatment under ASC 842, while IFRS 16 treats all non-exempt leases as finance-style.

Each year, the liability schedule opens with the prior closing balance, adds interest accretion, and subtracts the cash payment. For advance leases, payment is deducted before interest accrues; for arrears, interest is calculated on the opening balance.

• There is no floor at zero, so any residual naturally surfaces and should reach zero by the end of the term. The ROU asset schedule amortises the asset differently by class: operating leases use a single-lease-cost approach where amortisation equals the straight-line cost minus interest, while finance leases use straight-line amortisation of the Day-1 ROU asset.
• Operating amortisation can be negative in early years when interest exceeds the straight-line cost, which reflects the deferred rent mechanism. Impairment is available as a per-lease input, defaulting to zero.

The template produces a dashboard with headline metrics including Day-1 ROU, Day-1 liability, first-year cost split, closing balances at year five and year ten, classification counts and shares, weighted-average remaining term, weighted-average discount rate, and ratios such as ROU to total assets and lease liability to total debt.

• A P&L sheet separates operating lease cost, finance interest, finance ROU amortisation, variable lease cost, short-term lease cost, and impairment, with a deferred-rent roll-forward for operating leases. Cash flow splits payments into operating, financing interest, and principal.
• A disclosure sheet provides a maturity analysis, reconciliation to Day-1 liability, and weighted-average terms and rates by class. Sensitivity tables show how Day-1 liability responds to IBR and escalator shifts, supporting practical evaluation of discount rate and escalation assumptions.