FRS 102 Modified Retrospective Approach
Modified retrospective is how you bring existing leases onto the balance sheet when you first apply the amended Section 20. It is the only route available: FRS 102 gives no full retrospective option for the lease amendments, and comparatives are never restated.
What the approach requires
You do not go back and rewrite history. Comparative information stays as previously reported under the old operating and finance lease model, and the cumulative effect of first applying the amendments is recognised as an adjustment to the opening balance of retained earnings at the date of initial application.
FRS 102 Reference: FRS 102.1.46-1.47
There is no choice of method
Leases that were operating leases
These are the ones that move. At the transition date you recognise a lease liability at the present value of the remaining lease payments, discounted at your incremental or obtainable borrowing rate AT THE TRANSITION DATE, not at the rate that would have applied when the lease originally started. The right-of-use asset is then recognised at an amount equal to that liability, adjusted for any prepaid or accrued lease payments already sitting on the balance sheet.
FRS 102 Reference: FRS 102.1.51
Opening balances at the transition date
Leases that were already finance leases
Nothing to do. The carrying amounts of the right-of-use asset and the lease liability at the transition date are simply the carrying amounts of the lease asset and lease liability immediately before it. The accounting was already on the balance sheet, so no adjustment is required.
FRS 102 Reference: FRS 102.1.55
The practical expedients you can use
Several expedients are available, and they are elections you should make deliberately and record, because you have to describe the transitional provisions you applied.
FRS 102 Reference: FRS 102.1.52-1.53
| Expedient | Reference | What it lets you do |
|---|---|---|
| Single rate for a portfolio | 1.53(a) | Apply one discount rate to a portfolio of leases with reasonably similar characteristics, elected lease by lease |
| Onerous lease assessment | 1.53(b) | Rely on the Section 21 onerous lease assessment made immediately before transition instead of a Section 27 impairment review |
| Short remaining term | 1.53(c) | Leave out leases ending within 12 months of the date of initial application and treat them like short-term leases |
| Hindsight | 1.53(d) | Use hindsight, for example in deciding the lease term where there are extension or termination options |
| Low-value leases | 1.52(a) | No transition adjustment for low-value leases you will expense |
Expedients FRS 102 does NOT give you
Unlike IFRS 16, FRS 102 offers no transition expedient to exclude initial direct costs, and none to grandfather the assessment of whether a contract contains a lease. If you are working from IFRS 16 transition material, those two will mislead you.
If you already prepare IFRS 16 numbers
A lessee that already prepares IFRS 16 information for consolidated financial statements may transition by recognising the IFRS 16 carrying amounts of its right-of-use assets and lease liabilities at the date of initial application. Where you use that expedient you disclose the fact.
FRS 102 Reference: FRS 102.1.48
What you have to disclose
A description of the transitional provisions you applied, and, where you used the IFRS 16 carrying-amounts expedient, that you did. Note what is NOT required: unlike IFRS 16, FRS 102 does not require a weighted-average discount rate disclosure or a reconciliation from operating lease commitments to lease liabilities. Many entities present that bridge anyway in the adoption year, because auditors and readers find it helpful, but it is good practice rather than a requirement.
FRS 102 Reference: FRS 102.1.48, 1.50
How Lease102 runs it
Set the transition date, then use Bulk Calculate to produce opening balances across many leases at once. Each lease is priced at its own rate rather than a single portfolio scalar, which is what paragraph 1.51 contemplates; the batch rate is a fill tool for leases that have none, not an override. Prepaid and accrued rent is extracted per lease and carried into the asset as an explicit reclassification line rather than a retained earnings plug. Every uncalculated pre-transition lease is marked provisional wherever its figures appear, so a half-finished transition cannot be mistaken for a finished one.
Reset is available, and gated