CPI Rent Reviews: Why IFRS 16 Remeasures and ASC 842 Does Not

The question this page answers

Almost every commercial real-estate lease of any length carries an index clause. It is the most ordinary term in the book - and it is the point where a dual reporter’s two sets of numbers separate permanently, without anyone doing anything wrong.

This page works one indexed lease all the way through under both standards, including what happens when the cap bites.

Fact pattern

Read the second row carefully

The 2027 review applies 2.40% to $10,300 - the rent actually in effect - not to the $10,320 the rent would have been had the cap not bitten. The 0.20% shaved off in 2026 is gone permanently, and it compounds out of every year that follows. Whether that is right depends entirely on the clause, and clauses differ. It is worth reading yours before the abstraction is keyed, because no system will catch this for you.

Day 1 - where the two standards agree

Both standards measure the opening liability using the index level at commencement. Neither anticipates future increases, however certain they feel. ASC 842-10-30-5(b) and IFRS 16.27(b) are aligned here.

The lease is classified as a finance lease under ASC 842, so that the only difference on display below is the treatment of the index - not the classification model.

The first review - 1 January 2026

Rent rises to $10,300. Here the two standards do entirely different things, and neither is a judgement call - both are mandatory.

Two details in the IFRS entry are worth pausing on. First, nothing touches P&L - the right-of-use asset absorbs the whole adjustment, and the cost emerges later through a higher depreciation charge. Monthly depreciation steps up from $8,152.85 to $8,436.30 over the remaining 24 months. Second, the discount rate is deliberately held at the original 6.00%. IFRS 16.43 reserves a revised rate for changes in the lease term or in a purchase-option assessment. An index change is remeasured at the original rate. It is a common and entirely understandable error to refresh the rate here.

The second review - 1 January 2027

Rent rises to $10,547.20. The same split repeats on a shorter remaining term.

Under IFRS 16 the two reviews add $9,689.26 to the balance sheet across the life of the lease. Under ASC 842 the same economics arrive as $10,166.40 of variable lease cost passing straight through P&L, with nothing recognised on the balance sheet at all. The two totals differ because the IFRS figure is discounted and the ASC figure is not.

The journal entries

There is no ASC 842 remeasurement entry at the review date - that is the point. The $300 rides monthly alongside the unchanged interest and amortisation entries, and rises to $547.20 from month 25.

Where the two books stand at 31 December 2026

Two years in, on one lease. Multiply this by a portfolio of indexed leases and the bridge between a group’s IFRS and US GAAP reporting stops being a rounding note.

Same cash, same lifetime cost, different everything else

The divergence is real, but it is a matter of recognition and geography - not of total cost. Both standards recognise exactly the same amount over the life of the lease.

Independently: cash paid of $340,166.40, plus initial direct costs of $5,000.00, less the $12,000.00 incentive received, is $333,166.40. Under IFRS 16 the index increments are capitalised and depreciated. Under ASC 842 they are expensed as they are paid. The destination is the same. The route, the timing and the line item are not.

Proof

Every figure above comes out of workbooks that recompute each lease on an independent second road and cross-foot the result. Five checks have to hold, and they hold to zero:

Three notes before you apply this

The ASC 842 maturity table will not agree to your contracted cash. Because the liability is never re-based, the maturity analysis is built on commencement-level payments. On this lease it discloses future payments of $10,000 a month while the tenant is contractually paying $10,547.20. That is correct under the standard and it surprises people every year. Be ready to explain it.

Operating classification under ASC 842 changes nothing here. The no-remeasurement answer and the variable lease cost treatment are the same for an operating lease. Only the presentation of the base lease cost differs. The $10,166.40 is disclosed within variable lease cost either way.

The divergence compounds silently. Nothing about it produces an exception, a failed control or an out-of-balance. Both books are right. The exposure for a dual reporter is that the GAAP-to-IFRS bridge has to carry a growing, lease-by-lease reconciling item that nobody deliberately created - and it only becomes visible when someone foots the two portfolios against each other.

Request the worked example

This example ships as two complete Excel workbooks - the ASC 842 book and the IFRS 16 book on identical facts - so the divergence can be read across rather than described. Both are fully formula-driven and open. Change the index observation or the cap and every schedule, entry and disclosure moves with it.

The workbooks are sent by email rather than downloaded, so tell me briefly what you are working on - an indexed portfolio, a GAAP-to-IFRS bridge, an auditor’s question about a maturity table. It usually means I can send something closer to your facts than the generic file.

This worked example uses an illustrative fact pattern prepared by Fractional AI Lease Controllers, Inc. It is published for technical reference and is not accounting advice. Applying it to your own portfolio depends on the drafting of the index clause, your facts and your existing policy elections.