To Enter a Transition Lease (IFRS 16)

A transition lease is one with a start date before the Effective Date (2019-01-01 for a public company) but an End Date after that Effective Date.

For IFRS 16 leases, there are three methods for entering transition leases:

Name	Method	ROU Asset Value	Classification Date	How Established
Full Retrospective	Companies apply the new standard retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimate and Errors	Is calculated from the original lease Start Date and assumptions.	Lease Start Date	Chosen for all leases using the application parameters. See Set up Default Transition Dates and Preferences.
Modified Retrospective--Option 1 ROU	As if IFRS 16 was always applied	Is calculated from the original lease Start Date, but the Incremental Borrowing Rate is chosen as appropriate at the time of transition.	Lease Start Date	Chosen on a lease-by-lease basis in the Lease Classification Wizard
Modified Retrospective--Option 2 ILL	Based on Remaining Lease Liability	Is calculated to be equal to the remaining Lease Liability.	Date of Initial Application	Chosen on a lease-by-lease basis in the Lease Classification Wizard

The differences between entering a transition ASC 842 Lease and a non-transition lease are:

The Lease Administrator accepts a different default for Commencement Date (as described below).
The Lease Administrator selects the Previous Lease Classification (as described below).
The Lease Administrator chooses an appropriate Incremental Borrowing Rate for the transition.
The program calculates additional values for transition accounting and exports them to the sub-ledger.

Procedure

In the Real Estate Portfolio Management / Lease Administration / Lease Portfolio / Lease Portfolio Console, enter this data:

Start Date	Enter the full legacy Lease Start Date and End Dates
Costs	Enter Costs per the IAS 17 and IFRS 16, with gross lease costs (e.g. taxes, maintenance, insurance, etc.) broken out as separate Cost Categories from Base Rent but assigned to the lease.
Options	Enter your options the same as for a new ASC 842 or IFRS 16, as described in Entering your Leases and Lease Options with the Lease Portfolio Console.

In the Real Estate Portfolio Management / Lease Administration / Lease Portfolio / Lease Classification Wizard, enter this data:

FASB/IASB Lease Type	Choose either: IASB–Land or Building IASB–Equipment
Modified Retrospective Approach	If you have set the “IFRS Retrospective Approach” to “Modified”, the program enables this control. Make one of these selections for each lease: Modified Option 1 ROU – The program retrospectively calculates the legacy lease schedule as if IFRS always applied, however using an initial borrowing rate appropriate for the transition date. Modified Option 2 ILL– The program calculates the remaining Lease Liability going forward from the Classification.
Commencement Date	If you are using Full Retrospective or Modified--Option 1 ROU, this value defaults to the Lease Start Date. If you are using Modified--Option 2 ILL, this value defaults to the Date of Initial Application (2017-01-01 for a public company).
Previous Lease Classification	If your Commencement Date is after your Lease Start Date, the program enables this control. Change it to one of these selections: IAS 17 – Operating Lease IAS 17 – Capital Lease

If this is a Full Retrospective or Modified--Option 1 ROU classification, the program calculates the full amortization schedule.
If this is a Modified --Option 2 ILL classification, the program calculates the amortization schedule out from the Date of Initial Application in order to calculate the Initial Lease Liability. It uses this Initial Lease Liability as the Beginning ROU Asset Value.
If this is an IAS 17–Operating Lease, the program calculates the Difference in Equity for export to the sub-ledger to be applied to Retained Earnings.