Variable Lease Payments
Variable lease payments are payments for the right to use an underlying asset that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time.
Leasing
Explanation
ASC 842 and IFRS 16 distinguish two types. Payments that depend on an index or a rate, such as a consumer price index or a market interest rate, are included in lease payments, measured using the index or rate at commencement. Payments linked to performance or usage, such as percentage-of-sales rent or per-hour equipment charges, are excluded from the lease liability and the net investment and are recognized in the period in which they arise. In-substance fixed payments are treated as fixed. A key difference for lessees: under ASC 842, index-driven changes do not trigger remeasurement on their own, whereas under IFRS 16 the lease liability is remeasured when the cash flows change. Lessors recognize variable payments not included in the net investment or the straight-line amount as income in the period in which the facts and circumstances on which they are based occur.
Why It Matters
Usage-based and index-linked leases need data flows that capture actual usage or index values each period. In SAP, lessor variable income is handled in SAP RAR; lessee index adjustments are handled in SAP CLM.
Related Terms
Variable Consideration · Lease Liability · Net Investment in the Lease · Usage-Based Billing · ASC 842 · Equipment-as-a-Service
Related Solution:
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