Variable Payments Linked to Index
Related terms
Category
IFRS 16
Variable lease payments linked to an index or rate are payments that change based on a published benchmark such as CPI, a market rental rate, or a reference interest rate. Under ASC 842 and IFRS 16, these payments are included in the lease liability measurement using the index or rate at commencement.
Why it matters
Index-linked escalations are common in commercial real estate leases. Under ASC 842, the lease liability is initially measured using the current index value and only remeasured when a remeasurement event occurs. Under IFRS 16, the liability is remeasured whenever there is a change in cash flows from index-linked payments, creating more frequent adjustments.
How Arvexi handles this
Arvexi tracks index-linked payment provisions and applies the correct remeasurement treatment based on the standard. periodic for IFRS 16, event-driven for ASC 842. The platform adjusts the lease liability and ROU asset automatically when index values change.