Question 1

What is a lease modification under IND AS 116?

Accepted Answer

A lease modification is a change in the scope or consideration of a lease that was not part of the original terms. Examples include rent reductions, term extensions, giving back part of the leased space (scope reduction), or taking additional space at a non-market price.

Question 2

What is the difference between Para 45 and Para 46 of IND AS 116?

Accepted Answer

Para 45 applies when the modification changes rent or term without changing scope — the lease liability is remeasured at a revised IBR and the ROU asset is adjusted by the same amount with no P&L impact. Para 46a applies when scope decreases (partial termination) — proportional ROU and liability are derecognised, any difference is a P&L gain or loss, and the remainder is remeasured. Para 46b treats a scope increase at standalone price as a new separate lease.

Question 3

Which IBR should I use for a lease modification?

Accepted Answer

For Para 45 and Para 46 modifications, use the revised Incremental Borrowing Rate (IBR) at the modification effective date — the rate at which the lessee could borrow on that date for the revised term. The original IBR is not used for modifications.

Question 4

How is a gain or loss on lease modification calculated?

Accepted Answer

A gain or loss arises only on Para 46a (scope reduction). It equals the proportional lease liability derecognised minus the proportional ROU asset NBV derecognised minus any termination penalty paid. A positive result is a gain in P&L; a negative result is a loss.

Entity Type	Typical IBR Range	Reference Rate
Listed / Large Companies	7% – 10%	SBI MCLR 1-yr
Mid-size Companies	9% – 13%	MCLR + spread
MSMEs	11% – 16%	Bank base rate + risk
Start-ups / Early Stage	14% – 20%	NBFC / venture debt rate
Government / PSU entities	6% – 8%	G-sec yield / Repo rate

IND AS 116 Model 2Lease Modification Calculator

IND AS 116 Model 2
Lease Modification Calculator