Lease accounting standards, including ASC 842, IFRS 16 and those governed by the Government Accounting Standards Board (GASB 87/96) carry different requirements for journal entries as well.
ASC 842 requires companies to use the modified retrospective method when adopting the new lease standards. This means that lessees will need to record a journal entry for all existing leases as of the date of adoption. The journal entry will include a debit to the right-of-use asset and a credit to the lease liability. The debit to the right-of-use asset is equal to the present value of all remaining lease payments (initial lease liability) PLUS initial direct costs PLUS prepayments LESS any lease incentives. The credit to the lease liability is also equal to the present value of all remaining lease payments.
For both operating and capital leases, lessees will need to make a separate journal entry for each individual lease contract. The total amount of the journal entry will be the sum of all the individual entries.
The journal entries for leases under IFRS 16 are similar to those for ASC 842. The main difference is that IFRS 16 follows a single-model approach when recognizing depreciation of right-of-use asset and interest on a straight-line basis.
GASB 87 requires lessees to use implicit rate when calculating the present value of lease payments. However, if the implicit rate is not readily available to the lessee, Incremental Borrowing Rate (IBR) may be used. The journal entry will include a debit to right-of-use asset and a credit to lease liability. The debit to the right-of-use asset is equal to the present value of all remaining lease payments, plus any upfront payments, plus initial direct costs less any lease incentives received. The credit to the lease liability is equal to the present value of all remaining lease payments.
Journal entries for GASB 96 are very similar to GASB 87. The main difference is that GASB 96 may have implementation related costs that may be capitalizable.