What is the proper accounting treatment to record a variable lease payment indexed off the CPI?
A) Calculate the lease liability based on expected payments over the life of the lease after considering increases in the CPI.
B) Calculate the lease liability based on the base payment and debit an additional expense in subsequent years based on the change in the CPI.
C) Record the lease liability based on highest annual increase in the CPI for the past 10 years.
D) Capitalize and depreciate the increased payments based on CPI indexing.

Question

Quizplus · Accepted Answer

Variable lease payments that depend on an index or rate, such as CPI, are initially measured using the index or rate at the commencement date. Subsequent changes in the lease payments due to changes in the index or rate are recognized in profit or loss in the period in which the change occurs.

What Is the Proper Accounting Treatment to Record a Variable