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hi and welcome to accounting academy  i'm Fitz and this is my dog FIFO   we love to help people learn more about  accounting so join us on our adventures   as we dive into accounting topics on  today's adventure we are going to be   helping our friend Paul he recently modified  some of his leases and has asked for help   he owns a chain of veterinary clinics called  Pet Vet get back here FIFO it's just the vet Hey Paul how are things going. Hey guys things  are going great but I'm totally stumped on how   I should account for a few changes to my leases.  Well let's run through them see what we can do.   Okay great the first clinic is doing a  ton of business and we are expanding.   I had a thousand square foot office and now  I'm adding another thousand square feet.   However, the new square footage is being  added to the contract at the current market   rate which is higher. Okay I see so the cost of  the expansion is more than the original square   footage you had. Yeah that's correct. In that  case you meet the requirements of accounting   for this lease as a separate contract under ASC  842-10-25-8 a and b where you have additional   rights and increased payments. So just  account for the new lease separately. Yep.   That's easy enough. Okay my second lease  modification is an extension of a lease. So   the terms of the original lease is a 10-year lease  for a thousand dollars and we are in year five of   that lease. I wanted to lock in market rates so I  extended my lease for an additional 10 years for   a total of 15 years. Those 15 years will be locked  in at a new higher rate of eleven hundred dollars.   Okay in this case the lease is still a single  lease, because you have not been granted a new   asset. You would first want to check that with  the extended time that your lease would still be   classified as an operating lease. Since this  leases is for a building we will assume the   lease is still an operating lease. As part of the  modification you will need to recalculate the new   lease liability for the remaining 15 years at the  new price. When you do make sure you update your   incremental borrowing rate in the calculation as  of the date of the modification. That calculation   will become your new lease liability. oh okay so  the new lease liability gets added on to the old.   Yep that's correct. There should be no income  statement impact for this type of modification.   okay great but what about the ROU. Good question  the increase in the lease liability will be added   to the ROU as well. Great easy enough. Do you have  any other modifications? Yeah one more change.   This one is the opposite of the others. Business  is not doing as great in this part of town so we   are downsizing. We...