It is given in ind as 17 that if payments to lessor are structured to increase in line with inflation , then not to straight line lease rental over the lease term .
My question is whether only escalation part not to be straight line or whole of lease rentals?
and if not to be straightlined then what method to be consider to charge lease rental to P/L in such case
If the rental appreciation is once in three years lets say 10%. And for example inflation rate is 5 % p.a. , then for 3 years inflation becomes 15%.. So still the escalation is less than inflation so straight lining is not required.
In case any further clarification is required, pls lemme know.
One point should be noted here that standard does not say that escalation clause should be less than average inflation rate. Standard says the purpose of escalation is to meet inflation and hence the difference (postive or negative) between escalation and inflation rate should not be more. If the difference is not more then Lease rent will be recognised on accrual basis instead of straight line method. Further standard has not mentioned any quantitative threshold for this matter hence subjectivity involved in concluding