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# Based on Example 9 in the 2009 Preliminary Views document

A lessee enters into a five-year lease of a retail store. The lease is non-cancellable and the
lessee has no option to extend the lease. The lessee is required to make fixed annual
payments of CU500. In addition, the lessee is required to make payments equal to
1 percent of sales from the leased store. The lessee forecasts the following sales for the store
and assigns each outcome a probability:
Sales Level
Total forecast sales years 1 5 (CU)
Probability that forecast sales will occur
Probability weighted expected sales
Total contingent rentals 1% of forecast sales (CU)
Total fixed rentals years 1 5 (CU) - at CU 500 per year
Total estimated rentals years 1 5 (CU)

10000
10%
1,000.00

20000
60%
12,000.00

## Scenarios 1 and 3 make no adjustments to original forecast of contingent rentals.

Scenarios 2 and 4 make continuous adjustments to original forecast of contingent rentals.
The actual of the most recent year is assumed to be the new "best forecast" (this is a tedious method
Scenarios 1 and 2 have "nonsignficant" differences between predicted and actual.
Scenarios 3 and 4 have contingent rentals more than twice as high as the original forecast
No significant change in contingent rent example
Originally predicted contingent rent =
235
If we had perfectly predicted the future:
type= 0.00
r= 10%
LT= 5
fv= 0.00
Actual
Principal
Period
Fixed Payment Contingent Total payment
Interest
Reduction
payments
0.00
1.00
500
150
650 273.5142905 376.4857095
2.00
500
210
710 235.86571955 474.13428045
3.00
500
230
730 188.45229151 541.54770849
4.00
500
250
750 134.29752066 615.70247934
5.00
500
300
800 72.727272727 727.27272727
1
2500
1140
3640 904.85709496 2735.142905
amortization expense per year =
547.03
Interest expense per year
various

## Significant change in contingent rent examples

Originally predicted contingent rent =
235
If we had perfectly predicted the future:
type= 0.00
r= 10%
LT= 5
fv= 0.00
Actual
Principal
Period
Fixed Payment Contingent Total payment
Interest
Reduction
payments
0

1
2
3
4
5
1

500
500
500
500
500
2500

500
1000 423.66393254 576.33606746
550
1050 366.0303258 683.9696742
650
1150 297.63335838 852.36664162
700
1200 212.39669421 987.60330579
750
1250 113.63636364 1136.3636364
3150
5650 1413.3606746 4236.6393254
amortization expense per year =
847.33
Interest expense
various
Expense = cash outflows

## See separate sheets for journal entries

This summary does not have formulas
A more complicated annuity due payment schedule is
also illustrated with one change at beginning of Year 4
rather than the continuous revisions for this ordinary
annuity payment illustration.

or the store

es Level
35000
30%
10,500.00

Expected
Value
100%
23,500.00
235.00
500.00
735.00

ORD ANNUITY

Balance
2735.14290504
2358.65719555
1884.5229151
1342.97520661
727.272727273
0

Not Signif.
PERFECT
Forecast

Scenario 1
No

Scenario 2
Continuous

820.54
782.89
735.48
681.33
619.76
3640

750.87
750.87
765.23
755.93
735.03
736.19
699.81
703.67
689.06
693.35
3640 3640.002055

2,735.14
904.86
3,640.00

average=

Scenario 1
No
Diff from
perfect
8.5%
2.3%
0.1%
-2.7%
-11.2%

-0.6%

t rent examples
ORD

Balance
4236.63932543

Not Signif.
PERFECT
Forecast

Scenario 3
No

Scenario 4
Continuous

Scenario 3
No
Diff from
perfect

3660.30325797
2976.33358377
2123.96694215
1136.36363636
-2.273737E-012
4,236.64
1,413.36
5,650.00

1,270.99
1,213.36
1,144.96
1,059.72
960.96
5650

1,100.87
1,100.87
1,105.23
1,134.24
1,155.03
1,169.82
1,149.81
1,145.06
1,139.06
1,100.02
5650 5650.002065
average=

13.4%
8.9%
-0.9%
-8.5%
-18.5%

-1.1%

Scenario 2
Year 3
Diff from
perfect
8.5%
3.4%
-0.1%
-3.3%
-11.9%

-0.7%

Scenario 4
Year 3
Diff from
perfect

13.4%
6.5%
-2.2%
-8.1%
-14.5%

-1.0%

## Based on Example 9 in the 2009 Preliminary Views document

A lessee enters into a five-year lease of a retail store. The lease is non-cancellable and the
lessee has no option to extend the lease. The lessee is required to make fixed annual
payments of CU100. In addition, the lessee is required to make payments equal to 1 per
cent of sales from the leased store. The lessee forecasts the following sales for the store
and assigns each outcome a probability:
Sales Level
Total forecast sales years 1 5 (CU)
Probability that forecast sales will occur
Probability weighted expected sales
Total contingent rentals 1% of forecast sales (CU)
Total fixed rentals years 1 5 (CU) - at CU 500 per year
Total estimated rentals years 1 5 (CU)
Assume actual sales are as follows:
cont rent @
Year
sales
1%
1
15,000.00
150.00
2
21,000.00
210.00
3
23,000.00
230.00
4
25,000.00
250.00
5
30,000.00
300.00
114,000.00
1,140.00

10000
10%
1,000.00

20000
60%
12,000.00

n=
5.00
i=
10%
pmt=
735.00
fv=
0.00
Ord annuity
0.00
PVELP=
2,786.23

## Scenario 1 (no significant changes in contingent rent, ordinary annuity)

ORIGINAL TABLE BASED ON MOST LIKELY RENT
type=
0.00
r=
10%
LT=
5.00
fv=
0.00
Fixed
Payment

Period
0
1
2
3
4
5
1

500
500
500
500
500
2500

Contingent
payment
235
235
235
235
235
1175

Total
payment
735
735
735
735
735
3675

Interest

278.622828
232.98511
182.783621
127.561983
66.8181818
888.771724

Principal
Reduction
456.377172
502.01489
552.216379
607.438017
668.181818
2786.22828

## Scenario 1 (no significant changes in contingent rent, ordinary annuity)

No changes in original estimates
Beginning of Year 1
At inception of lease:
debit
credit
Right-of-use asset
2,786.23
Liability for lease payments
2,786.23
No adjustments to right to use asset
and liability since the difference between

## predicted and actual is not material

End of Year 1
debit
credit
557.25
557.25

Amortization expense
Acc'd amortization
Gain (loss) on contingent rental*
Liability for lease payments
Interest expense
Cash

85.00
456.38
278.62

650.00
1,292.25
1,292.25
*difference between predicted and actual conti
Total
End of Year 1
Impact on net income
-3,640.00
-750.87
Carrying value of right-to-use asset
2,228.98
Carrying value of liability to make lease payments
-2,329.85
Cumulative cash paid
-650.00
Net related balance sheet accounts
-750.87
Change in owners equity
-750.87
Scenario 2 (no significant changes in contingent rent, ordinary annuity)
Continually revised table
type=
0.00
r=
10%
LT=
5.00
fv=
0.00
Fixed
Payment

Period
0
1
2
3
4
5
1

500
500
500
500
500
2500

Contingent
payment
235
150
210
230
250
1075

Total
payment
735
650
710
730
750
3575

Interest

278.622828
206.041364
176.565992
126.693806
68.182005
856.105995

Principal
Reduction
456.377172
443.958636
533.434008
603.306194
681.817995
2718.894

## Scenario 2 (no significant changes in contingent rent, ordinary annuity)

Continually revised table
Beginning of Year 1
At inception of lease:
debit
credit
Right-of-use asset
2,786.23
Liability for lease payments
2,786.23
2,786.23
2,786.23
Adjusted carrying value for right-to-use asset
2,786.23
Adjustments always assume that future contingent rentals
will be the same as contingent rent just paid
End of Year 1
debit
credit
Amortization expense
557.25
Acc'd amortization
557.25

## Gain (loss) on contingent rental*

Liability for lease payments
Interest expense
Cash

85.00
456.38
278.62

650.00
1,292.25
1,292.25
*difference between predicted and actual conti
Total
End of Year 1
Impact on net income
-3,640.00
-750.87
Carrying value of right-to-use asset
2,228.98
Carrying value of liability to make lease payments
-2,329.85
Cumulative cash paid
-650.00
Net related balance sheet accounts
-750.87
Change in owners equity
-750.87
Difference from "close enough" assumption
As percent of originally predicted payment

0.00
0%

## ancellable and the

fixed annual
s equal to 1 per
les for the store

es Level
Expected
Value

35000
30%
10,500.00

23,500.00
235.00
500.00
735.00

Balance
2786.22828
2329.8511
1827.83621
1275.61983
668.181818
0

## The no significant change in c

Originally predicted contingent rent =
If we had perfectly predicted the future:
r= 10%
LT= 5
Fixed
Contingent
Total
Period
Payment
payment
payment
0
1
500
150
650
2
500
210
710
3
500
230
730
4
500
250
750
5
500
300
800
1
2500
1140
3640
amortization expense per year =
Interest expense
Expense = cash outflows

Actual
Difference to
contingent
NI
rent
150.00
210.00
230.00
250.00
300.00
1140

85.00
25.00
5.00
-15.00
-65.00
35

End of Year 2
debit
credit
557.25
557.25

End of Year 3
debit
credit
557.25
557.25

25.00
502.01
232.99

5.00
552.22
182.78

710.00
730.00
1,292.25
1,292.25
1,292.25
1,292.25
en predicted and actual contingent rentals
End of Year 2
End of Year 3
-765.23
-735.03
1,671.74
1,114.49
-1,827.84
-1,275.62
-1,360.00
-2,090.00
-1,516.10
-2,251.13
-765.23
-735.03

269.44
-149.20
-34.71
-18.19

Balance
2786.22828
2060.41364
1765.65992
1266.93806
681.82005
0.002055

Remaining
payments
4.00
3.00
2.00
1.00
0.00

Revised
Payment
650.00
710.00
730.00
750.00

End of Year 4
debit
credit
557.25
557.25
15.00
607.44
127.56
1,307.25

750.00
1,307.25

End of Year 4
-699.81
557.25
-668.18
-2,840.00
-2,950.94
-699.81

Balance
should be
2,060.41
1,765.66
1,266.94
681.82
0.00

Prior balance

2,329.85
1,616.46
1,232.23
663.63

Beginning of Year 2
debit
credit
269.44
269.44
269.44
269.44
1,959.55

Beginning of Year 3
debit
credit
149.20
149.20
149.20
149.20
1,618.86

Beginning of Year 4
debit
credit
34.71
34.71
34.71
34.71
1,113.95

End of Year 2
debit
credit
489.89
489.89

End of Year 3
debit
credit
539.62
539.62

End of Year 4
debit
credit
556.98
556.98

60.00
443.96
206.04

20.00
533.43
176.57

20.00
603.31
126.69

710.00
730.00
1,199.89
1,199.89
1,269.62
1,269.62
en predicted and actual contingent rentals
End of Year 2
End of Year 3
-755.93
-736.19
1,469.66
1,079.24
-1,616.46
-1,232.23
-1,360.00
-2,090.00
-1,506.80
-2,242.98
-755.93
-736.19
9.30
1%

-1.16
0%

1,306.98

750.00
1,306.98

End of Year 4
-703.67
556.98
-663.63
-2,840.00
-2,946.65
-703.67
-3.86
-1%

## no significant change in contingent rent example

235
Not Signif. Scenario 1 Scenario 2
type= 0.00
ORD
PERFECT
No
Continuous
fv= 0.00
Forecast
Principal
Total
Total
Interest
Balance Total expense
Reduction
expense
expense
2735.1429
273.514291 376.485709 2358.6572
820.54
750.87
750.87
235.86572 474.13428 1884.5229
782.89
765.23
755.93
188.452292 541.547708 1342.9752
735.48
735.03
736.19
134.297521 615.702479 727.27273
681.33
699.81
703.67
72.7272727 727.272727
0
619.76
689.06
693.35
904.857095 2735.14291
3640
3640 3640.00206
ense per year =
547.03 2,735.14
various
904.86
3,640.00

End of Year 5
Totals
debit
credit
557.25
2,786.23
557.25 -2,786.23
65.00
668.18
66.82
1,357.25

-35.00
2,786.23
888.77
800.00 -3,640.00
1,357.25
0.00

End of Year 5
-689.06
0.00
0.00
-3,640.00
-3,640.00
-689.06

Actual
Difference to
contingent
NI
rent
150.00
210.00
230.00
250.00
300.00
1140

85.00
-60.00
-20.00
-20.00
-50.00
-65

Beginning of Year 5
Totals
debit
credit
18.19
2,718.90
18.19 -2,718.90
18.19
18.19
0.00
575.17

End of Year 5
Totals
debit
credit
575.17
2,718.90
575.17 -2,718.90

50.00
681.82
68.18
1,375.17

65.00
2,718.89
856.11
800.00 -3,640.00
1,375.17
0.00

End of Year 5
-693.35
0.00
0.00
-3,640.00
-3,640.00
-693.35
-4.28
-1%

Scenario 1 Scenario 2
No
Year 3
Diff from
Diff from
perfect
perfect
8.5%
2.3%
0.1%
-2.7%
-11.2%

8.5%
3.4%
-0.1%
-3.3%
-11.9%

-0.6%

-0.7%

## Based on Example 9 in the 2009 Preliminary Views document

A lessee enters into a five-year lease of a retail store. The lease is non-cancellable and the
lessee has no option to extend the lease. The lessee is required to make fixed annual
payments of CU100. In addition, the lessee is required to make payments equal to 1 per
cent of sales from the leased store. The lessee forecasts the following sales for the store
and assigns each outcome a probability:
Sales Level
Total forecast sales years 1 5 (CU)
Probability that forecast sales will occur
Probability weighted expected sales
Total contingent rentals 1% of forecast sales (CU)
Total fixed rentals years 1 5 (CU) - at CU 500 per year
Total estimated rentals years 1 5 (CU)

10000
10%
1,000.00

20000
60%
12,000.00

## Assume actual sales are as follows:

cont rent @
Year
sales
1%
Present value of expected lease payments
1
50,000.00
500.00
n=
5.00
2
55,000.00
550.00
i=
10%
3
65,000.00
650.00
pmt=
735.00
4
70,000.00
700.00
fv=
0.00
5
75,000.00
750.00
Ord annuity
0.00
315,000.00
3,150.00
PVELP=
2,786.23
This is more than TWICE the actual in the "no significant change" version
Scenario 3 - significant changes in contingent rent, ordinary annuity payments
ORIGINAL TABLE BASED ON MOST LIKELY RENT
type=
0.00
r=
10%
LT=
5.00
fv=
0.00
Fixed
Payment

Period
0
1
2
3
4
5
1

500
500
500
500
500
2500

Contingent
payment
235
235
235
235
235
1175

Total
payment
735
735
735
735
735
3675

Interest

278.622828
232.98511
182.783621
127.561983
66.8181818
888.771724

Principal
Reduction
456.377172
502.01489
552.216379
607.438017
668.181818
2786.22828

## Scenario 3 - significant changes in contingent rent, ordinary annuity payments

No changes made to original estimates
Beginning of Year 1
At inception of lease:
debit
credit
Right-of-use asset
2,786.23
Liability for lease payments
2,786.23
No adjustments to right to use asset

## and liability since the difference between

predicted and actual is not material

End of Year 1
debit
credit
557.25
557.25

Amortization expense
Acc'd amortization
Gain (loss) on contingent rental*
Liability for lease payments
Interest expense
Cash

265.00
456.38
278.62

1,000.00
1,557.25
1,557.25
*difference between predicted and actual conti
Total
End of Year 1
Impact on net income
-5,650.00
-1,100.87
Carrying value of right-to-use asset
2,228.98
Carrying value of liability to make lease payments
-2,329.85
Cumulative cash paid
-1,000.00
Net related balance sheet accounts
-1,100.87
Change in owners equity
-1,100.87
Roughtly based on Example 9 in the 2009 Preliminary Views document
A lessee enters into a five-year lease of a retail store. The lease is non-cancellable and the
lessee has no option to extend the lease. The lessee is required to make fixed annual
payments of CU500. In addition, the lessee is required to make payments equal to
1 percent of sales from the leased store. The lessee forecasts the following sales for the store
and assigns each outcome a probability:
Sales Level
Total forecast sales years 1 5 (CU)
Probability that forecast sales will occur
Probability weighted expected sales
Total contingent rentals 1% of forecast sales (CU)
Total fixed rentals years 1 5 (CU) - at CU 500 per year
Total estimated rentals years 1 5 (CU)
Assume actual sales are as follows:
cont rent @
Year
sales
1%
1
50,000.00
500.00
2
55,000.00
550.00
3
65,000.00
650.00
4
70,000.00
700.00
5
75,000.00
750.00
315,000.00
3,150.00

10000
10%
1,000.00

20000
60%
12,000.00

n=
5.00
i=
10%
pmt=
735.00
fv=
0.00
Ord annuity
0.00
PVELP=
2,786.23

## Scenario 4 - significant changes in contingent rents, ordinary annutiy

Continually revised table
type=
0.00
r=
10%
LT=
5.00
fv=
0.00

Fixed
Payment

Period
0
1
2
3
4
5
1

Contingent
payment

500
500
500
500
500
2500

Total
payment

235
500
550
650
700
2635

735
1000
1050
1150
1200
5135

Interest

278.622828
316.986655
261.119779
199.586534
109.091097
1165.40689

Principal
Reduction
456.377172
683.013345
788.880221
950.413466
1090.9089
3969.59311

## Scenario 4 - significant changes in contingent rents, ordinary annutiy

Continually revised table
Beginning of Year 1
At inception of lease:
debit
credit
Right-of-use asset
2,786.23
Liability for lease payments
2,786.23
2,786.23
2,786.23
2,786.23
Carrying value for right-to-use asset after adjustment
Adjustments always assume that future contingent rentals
will be the same as contingent rent just paid

Amortization expense
Acc'd amortization
Gain (loss) on contingent rental*
Liability for lease payments
Interest expense
Cash

End of Year 1
debit
credit
557.25
557.25
265.00
456.38
278.62

1,000.00
1,557.25
1,557.25
*difference between predicted and actual conti
Total
End of Year 1
Impact on net income
-5,650.00
-1,100.87
0.00
Difference between "no adjustment" and "continuous adjustment"
170.12
Difference between "continuous adjustment" and "perfect forecast"
170.12
Difference between "no adjustment" and "perfect forecast"

## ancellable and the

fixed annual
s equal to 1 per
les for the store

es Level
Expected
Value

35000
30%
10,500.00

23,500.00
235.00
500.00
735.00

uity payments

Balance
2786.22828
2329.8511
1827.83621
1275.61983
668.181818
0

uity payments

## Significant change in continge

Originally predicted contingent rent =
If we had perfectly predicted the future:
r= 10%
LT= 5
Fixed
Contingent
Total
Period
Payment
payment
payment
0
1
500
500
1000
2
500
550
1050
3
500
650
1150
4
500
700
1200
5
500
750
1250
1
2500
3150
5650
amortization expense per year =
Interest expense
Expense = cash outflows

Actual
Difference to
contingent
NI
rent
500.00
550.00
650.00
700.00
750.00
3150

-265.00
-315.00
-415.00
-465.00
-515.00
-1975

End of Year 2
debit
credit
557.25
557.25
315.00
502.01
232.99

End of Year 3
debit
credit
557.25
557.25
415.00
552.22
182.78

1,050.00
1,150.00
1,607.25
1,607.25
1,707.25
1,707.25
en predicted and actual contingent rentals
End of Year 2
End of Year 3
-1,105.23
-1,155.03
1,671.74
1,114.49
-1,827.84
-1,275.62
-2,050.00
-3,200.00
-2,206.10
-3,361.13
-1,105.23
-1,155.03

## ancellable and the

fixed annual
s equal to
ng sales for the store
es Level
35000
30%
10,500.00

## xpected lease payments

Expected
Value
23,500.00
235.00
500.00
735.00

End of Year 4
debit
credit
557.25
557.25
465.00
607.44
127.56
1,757.25

1,200.00
1,757.25

End of Year 4
-1,149.81
557.25
-668.18
-4,400.00
-4,510.94
-1,149.81

-840.02
-124.34
-173.55
-45.46

Balance
2786.22828
3169.86655
2611.19779
1995.86534
1090.91097
0.002065

Remaining
payments
4
3
2
1
0

Revised
Payment
1,000.00
1,050.00
1,150.00
1,200.00

Balance
should be
3,169.87
2,611.19
1,995.87
1,090.91
0.00

Prior balance

2,329.85
2,486.85
1,822.32
1,045.45

Beginning of Year 2
Beginning of Year 3
Beginning of Year 4
debit
credit
debit
credit
debit
credit
840.02
124.34
173.55
840.02
124.34
173.55
840.02
840.02
124.34
124.34
173.55
173.55
3,069.00
2,426.09
1,790.94
divided by 4
divided by 3
divided by 2

End of Year 2
debit
credit
767.25
767.25
50.00
683.01
316.99

End of Year 3
debit
credit
808.70
808.70
100.00
788.88
261.12

1,050.00
1,150.00
1,817.25
1,817.25
1,958.70
1,958.70
en predicted and actual contingent rentals
End of Year 2
End of Year 3
-1,134.24
-1,169.82
-29.01
-14.79
79.12
-24.86
108.13
-10.07

End of Year 4
debit
credit
895.47
895.47
50.00
950.41
199.59
2,095.47

1,200.00
2,095.47

End of Year 4
-1,145.06
4.75
-85.33
-90.08

## nificant change in contingent rent examples

235
Not Signif. Scenario 3 Scenario 4 Scenario 3
type= 0.00
ORD
PERFECT
No
Continuous
No
fv= 0.00
Forecast
Principal
Total
Total
Total
Diff from
Interest
Balance
Reduction
expense
expense
expense
perfect
4236.6393
423.663933 576.336067 3660.3033
1,270.99
1,100.87
1,100.87
13.4%
366.030326 683.969674 2976.3336
1,213.36
1,105.23
1,134.24
8.9%
297.633358 852.366642 2123.9669
1,144.96
1,155.03
1,169.82
-0.9%
212.396694 987.603306 1136.3636
1,059.72
1,149.81
1,145.06
-8.5%
113.636364 1136.36364
0
960.96
1,139.06
1,100.02
-18.5%
1413.36067 4236.63933
5650
5650 5650.00207
ense per year =
847.33 4,236.64
various
1,413.36
-1.1%
5,650.00

End of Year 5
Totals
debit
credit
557.25
2,786.23
557.25 -2,786.23
515.00
668.18
66.82
1,807.25

1,975.00
2,786.23
888.77
1,250.00 -5,650.00
1,807.25
0.00

End of Year 5
-1,139.06
0.00
0.00
-5,650.00
-5,650.00
-1,139.06

Actual
Difference to
contingent
NI
rent
500.00
550.00
650.00
700.00
750.00
3150

-265.00
-50.00
-100.00
-50.00
-50.00
-515

Beginning of Year 5
Totals
debit
credit
45.46
3,969.60
45.46 -3,969.60
45.46
45.46
0.00
940.93
divided by 1

End of Year 5
Totals
debit
credit
940.93
3,969.60
940.93 -3,969.60
50.00
1,090.91
109.09
2,190.93

515.00
3,969.59
1,165.41
1,250.00 -5,650.00
2,190.93
0.00

End of Year 5
-1,100.02
39.04
-139.06
-178.10

0.00
0.00
0.00

Scenario 4
Year 3
Diff from
perfect
13.4%
6.5%
-2.2%
-8.1%
-14.5%

-1.0%

## Based on Example 9 in the 2009 Preliminary Views document

A lessee enters into a five-year lease of a retail store. The lease is non-cancellable and the
lessee has no option to extend the lease. The lessee is required to make fixed annual
payments of CU500 beginning at inception of the lease. In addition, the lessee is required to make pay
equal to 1 percent of sales from the leased store, paid at the end of the year. The lessee forecasts the
sales levels and assigns each outcome a probability:
Sales Level
Total forecast sales years 1 5 (CU)
Probability that forecast sales will occur
Probability weighted expected sales
Total contingent rentals 1% of forecast sales (CU)
Total fixed rentals years 1 5 (CU) - at CU 500 per year
Total estimated rentals years 1 5 (CU)

10000
10%
1,000.00

20000
60%
12,000.00

## Assume actual sales are as follows:

At inception of lease:
cont rent @
Year
sales
1%
PVELP
Fixed
1
50,000.00
500.00
n=
5.00
2
55,000.00
550.00
i=
10%
3
65,000.00
650.00
pmt=
500.00
4
70,000.00
700.00
fv=
0.00
5
75,000.00
750.00
Ann due
1.00
315,000.00
3,150.00
PVELP=
2,084.93
This is more than TWICE the actual in the "no significa
2,975.77 Or use NPV for cash flows
displayed in table:
Scenario 5 - Significant changes in contingent rent, annuity due payments
ORIGINAL TABLE BASED ON MOST LIKELY RENT
r=
10%
LT=
5.00
type=
1.00
Beginning of
period
0
1
2
3
4
5
6

Fixed
Payment
500
500
500
500
500

2500

Contingent
payment
0
235
235
235
235
235
1175

Total
payment
500
735
735
735
735
235
3675

Interest

0
247.576761
198.834438
145.217881
86.2396694
21.3636364
699.232386

Principal
Reduction
500
487.423239
536.165562
589.782119
648.760331
213.636364
2975.76761

## Scenario 5 - Significant changes in contingent rent, annuity due payments

No changes to original estimates
Beginning of Year 1
At inception of lease:
debit
credit
Right-of-use asset
2,975.77
Liability for lease payments
2,475.77

Cash
2,975.77
2,975.77

500.00
2,975.77

## No adjustments to right to use asset

and liability since the difference between
predicted and actual is not significant
End of Year 1
debit
credit
595.15
595.15

Amortization expense
Acc'd amortization
Gain (loss) on contingent rental*
Liability for lease payments
Interest expense
Liability for lease payments
Cash (final cont. rent payment)

265.00
487.42
247.58
1,000.00

1,595.15
1,595.15
*difference between predicted and actual conti
Total
End of Year 1
Impact on net income
-5,650.00
-1,107.73
Carrying value of right-to-use asset
2,380.61
Carrying value of liability to make lease payments
-1,988.34
Cumulative cash paid
-1,000.00
Net related balance sheet accounts
-607.73
Change in owners equity
-607.73

## Based on Example 9 in the 2009 Preliminary Views document

A lessee enters into a five-year lease of a retail store. The lease is non-cancellable and the
lessee has no option to extend the lease. The lessee is required to make fixed annual
payments of CU500 beginning at inception of the lease. In addition, the lessee is required to make pay
equal to 1 percent of sales from the leased store, paid at the end of the year. The lessee forecasts the
sales levels and assigns each outcome a probability:
Sales Level
Total forecast sales years 1 5 (CU)
Probability that forecast sales will occur
Probability weighted expected sales
Total contingent rentals 1% of forecast sales (CU)
Total fixed rentals years 1 5 (CU) - at CU 500 per ye
Total estimated rentals years 1 5 (CU)
Assume actual sales are as follows:
cont rent @
sales
1%
1.00
50,000.00
500.00

10000
10%
1000
10
50.00
60.00

PVELP

20000
60%
12000
120
300.00
420.00
Fixed

n=
i=

5.00
10%

2.00
3.00
4.00
5.00

55,000.00
550.00
pmt=
500.00
65,000.00
650.00
fv=
0.00
70,000.00
700.00
Ann due
1.00
75,000.00
750.00
PVELP=
2,084.93
315,000.00
3,150.00
2,975.77
This is more than TWICE the actual in the "no significant change" version

## Scenario 6 - Significant changes in contingent rent, annuity due payments

Revised amortization table - revision beginning of Year 4
ANNUITY DUE
r=
10%
LT=
5.00
type=
1.00
Beginning of
period
0
1
2
3
4
5
6
1

Fixed
Payment

500
500
500
500
500
0
2500

Estimated
Contingent
payment

Total
payment

0
235
235
700
700
700
2570

500
735
735
1200
1200
700
5070

Interest

0
247.576761
198.834438
260.856499
166.942149
63.6363636
937.84621

Principal
Reduction

500
487.423239
536.165562
939.143501
1033.05785
636.363636
4132.15379

## Scenario 6 - Significant changes in contingent rent, annuity due payments

Revisions made beginning of Year 4
Beginning of Year 1
At inception of lease:
debit
credit
Right-of-use asset
2,975.77
Liability for lease payments
2,475.77
Cash
500.00
Liability for lease payments
2,975.77
2,975.77
2,975.77
Adjustment to future expected contingent
rentals made a beginning of year 4
New forecast = CU 700 per year instead of CU 235.
End of Year 1
Adj = CU 1,156
debit
credit
Amortization expense
595.15
Acc'd amortization
595.15
Gain (loss) on contingent rental*
Liability for lease payments
Interest expense
Liability for lease payments
Cash (final cont. rent pymt)

265.00
487.42
247.58
1,000.00

1,595.15
1,595.15
*difference between predicted and actual conti

Total
Impact on net income
-5,650.00
Carrying value of right-to-use asset
Carrying value of liability to make lease payments
Cumulative cash paid
Net related balance sheet accounts
Change in owners equity
Difference from "close enough" assumption

End of Year 1
-1,107.73
2,380.61
-2,988.34
-500.00
-1,107.73
-1,107.73
0.00

## ancellable and the

fixed annual
lessee is required to make payments
year. The lessee forecasts the following

es Level
35000
30%
10,500.00

Expected
Value
100%
23,500.00
235.00
500.00
735.00

## Significant change in continge

Originally predicted contingent rent =
If we had perfectly predicted the future:
r= 10%
LT= 5
Fixed
Contingent
Total
Period
Payment
payment
payment
Contingent
5.00
0
10%
1
500
0
500
235.00
2
500
500
1000
0.00
3
500
550
1050
0.00
4
500
650
1150
890.83
5
500
700
1200
se NPV for cash flows
6
750
750
layed in table:
1
2500
3150
5650
amortization expense per year =
payments
Interest expense
Expense = cash outflows
2,975.77 Using NPV adj for annuity due
Actual
Difference to Actual Cash
Balance
contingent
NI
flows
rent
2975.76761
2475.76761
500.00
1988.34438
500.00
-265.00
1,000.00
1452.17881
550.00
-315.00
1,050.00
862.396694
650.00
-415.00
1,150.00
213.636364
700.00
-465.00
1,200.00
3.2401E-012
750.00
-515.00
750.00
-1,975.00
5,150.00
payments
Beginning of Year 2
debit
credit
1,000.00

Beginning of Year 3
debit
credit
1,050.00

Beginning of Year 4
debit
credit
1,150.00

1,000.00
2,380.61

1,000.00
1,000.00

End of Year 2
debit
credit
595.15
595.15
315.00
536.17
198.83

1,050.00
1,785.46

1,050.00
1,050.00

End of Year 3
debit
credit
595.15
595.15
415.00
589.78
145.22

1,050.00

1,150.00
1,190.31

End of Year 4
debit
credit
595.15
595.15
465.00
648.76
86.24

1,150.00

1,645.15
1,645.15
1,745.15
1,745.15
en predicted and actual contingent rentals
End of Year 2
End of Year 3
-1,108.99
-1,155.37
1,785.46
1,190.31
-1,452.18
-862.40
-2,050.00
-3,200.00
-1,716.72
-2,872.09
-1,108.99
-1,155.37

1,200.00
1,795.15

1.00

2,500.00

1,795.15

End of Year 4
-1,146.39
595.15
-213.64
-4,400.00
-4,018.48
-1,146.39

## ancellable and the

fixed annual
lessee is required to make payments
year. The lessee forecasts the following
Table based on revision
ANNUITY DUE
es Level
r=
10%
LT=
Expected
Beginning of
Fixed
Contingent
Value
period
Payment
payment
35000
30%
0
10500
23,500.00
1
500.00
0.00
105
235.00
2
500.00
700.00
150.00
500.00
3
500.00
700.00
255.00
735.00
4
500.00
700.00
5
500.00
700.00
Contingent
6
700.00
5.00
10%

1,150.00
1,150.00

2,800.00

5.00
Total
payment
500.00
1,200.00
1,200.00
1,200.00
1,200.00
700.00
6,000.00

235.00
0.00
0.00
890.83

## End of Year 3, Beginning of Year 4

2.00
3.00
10%
10%
500.00
700.00
0.00
0.00
0.00
0.00
867.77
1,740.80
2,608.56

payments
UITY DUE

Balance

2975.76761
2475.76761
1988.34438
-1,156.39 2608.56499
1669.42149
636.363636
0

Revision 1,
predicted
payments

2,608.56
1,200.00
1,200.00
700.00

present
value of
revised
pymts

2,608.56

Balance
before

1,452.18

needed

1,156.39

rounding error

payments
Beginning of Year 2
debit
credit

Beginning of Year 3
debit
credit

1,000.00
1,000.00
1,000.00
2,380.61

1,000.00

End of Year 2
debit
credit
595.15
595.15
315.00
536.17
198.83

1,050.00
1,050.00
1,050.00
1,785.46

1,050.00

Beginning of Year 4
debit
credit
1,156.39
1,156.39
1,150.00
1,150.00
2,306.39
2,306.39
2,346.69

End of Year 3
debit
credit
595.15
595.15

End of Year 4
debit
credit
1,173.35
1,173.35

50.00

0.00

939.14
260.86
1,050.00

1,645.15
1,645.15
1,795.15
en predicted and actual contingent rentals

1,033.06
166.94
1,150.00
1,795.15

1,200.00
2,373.35

2,373.35

End of Year 2
-1,108.99
1,785.46
-2,502.18
-1,500.00
-2,216.72
-1,108.99

End of Year 3
-806.01
1,190.31
-1,663.04
-2,550.00
-3,022.73
-806.01

End of Year 4
-1,340.29
1,173.35
-1,836.36
-3,700.00
-4,363.02
-1,340.29

0.00

349.36

-193.90

## nificant change in contingent rent examples (annuity due payments)

235
Significant Scenario 5 Scenario 6 Scenario 5
type= 1
DUE
PERFECT
No
No
fv= 0.00
Forecast
Year 3
Principal
Total
Total
Total
Diff from
Interest
Balance
Reduction
expense
expense
expense
perfect
4426.1787
0
500 3926.1787
885.24
1,107.73
1,107.73
-25.1%
392.617866 607.382134 3318.7965
1,277.85
1,108.99
1,108.99
13.2%
331.879653 718.120347 2600.6762
1,217.12
1,155.37
806.01
5.1%
260.067618 889.932382 1710.7438
1,145.30
1,146.39
1,340.29
-0.1%
171.07438 1028.92562 681.81818
1,124.49
1,131.52
1,286.98
-0.6%
68.1818182 681.818182
0
1223.82134 4426.17866
5650
5650
5,650.00
ense per year =
885.24 4,426.18
average
-1.5%
various
1,223.82
5,650.00

Beginning of Year 5
debit
credit
1,200.00

Totals
2,975.77
1,924.23

-2,975.77

1,200.00
595.15

1,200.00 -4,900.00
1,200.00
0.00

End of Year 5
Totals
debit
credit
595.15
2,975.77
595.15 -2,975.77
515.00
213.64
21.36

1,345.15

1,975.00
2,475.77
699.23
-4,400.00
750.00
-750.00
1,345.15
0.00

End of Year 5
-1,131.52
0.00
0.00
-5,150.00
-5,650.00
-5,150.00
-1,131.52

type=
fv=
Interest

1.00
0.00
Principal
Reduction

0.00
423.85
346.23
260.86
166.94
63.64

500.00
776.15
853.77
939.14
1,033.06
636.36

1,197.88

4,102.12

4,738.48
Balance
4,738.48
4,238.48
3,462.33
2,608.56
1,669.42
636.36
0.00

Actual
Total
Difference to
contingent
actual
NI
rent
cash flows

500.00
550.00
650.00
700.00
750.00
3,150.00

-265.00
-315.00
50.00
0.00
-50.00
-580.00

Beginning of Year 5
debit
credit

1,200.00
1,200.00
1,173.35

500.00
1,000.00
1,050.00
1,150.00
1,200.00
750.00
5,650.00

Totals

4,132.15
-3,632.15
1,200.00 -4,900.00
4,400.00
1,200.00
0.00

End of Year 5
Totals
debit
credit
1,173.35
4,132.15
1,173.35 -4,132.15
50.00
636.36
63.64
750.00
2,673.35

580.00
3,632.15
937.85
750.00 -4,400.00
750.00
-750.00
2,673.35
0.00

4,132.15

End of Year 5
-1,286.98
0.00
0.00
-5,650.00
-5,650.00
-5,650.00
-1,286.98
-155.47

Scenario 6
end of Yr 3
Diff from
perfect
-25.1%
13.2%
33.8%
-17.0%
-14.5%

-1.9%

## Based on Example 9 in the 2009 Preliminary Views document

A lessee enters into a five-year lease of a retail store. The lease is non-cancellable and the
lessee has no option to extend the lease. The lessee is required to make fixed annual
payments of CU500 beginning at inception of the lease. In addition, the lessee is required to make pay
equal to 1 percent of sales from the leased store, paid at the end of the year. The lessee forecasts the
sales levels and assigns each outcome a probability:
Sales Level
Total forecast sales years 1 5 (CU)
Probability that forecast sales will occur
Probability weighted expected sales
Total contingent rentals 1% of forecast sales (CU)
Total fixed rentals years 1 5 (CU) - at CU 500 per year
Total estimated rentals years 1 5 (CU)
Assume actual sales are as follows:
cont rent @
Year
sales
1%
1
15,000.00
150.00
2
21,000.00
210.00
3
23,000.00
230.00
4
25,000.00
250.00
5
30,000.00
300.00
114,000.00
1,140.00

10000
10%
1,000.00

20000
60%
12,000.00

At inception of lease:
PVELP

Fixed
n=
5.00
i=
10%
pmt=
500.00
fv=
0.00
Ann due
1.00
PVELP=
2,084.93
2,975.77 Or use NPV for cash flows
displayed in table:

## Scenario 7 - no significant changes in contingent rents, annuity due payments

ORIGINAL TABLE BASED ON MOST LIKELY RENT
ANNUITY DUE
r=
10%
LT=
5.00
type=
1.00
Beginning of
period
0
1
2
3
4
5
6

Fixed
Payment
500
500
500
500
500

2500

Contingent
payment
0
235
235
235
235
235
1175

Total
payment
500
735
735
735
735
235
3675

Interest

0
247.576761
198.834438
145.217881
86.2396694
21.3636364
699.232386

Principal
Reduction
500
487.423239
536.165562
589.782119
648.760331
213.636364
2975.76761

## Scenario 7 - no significant changes in contingent rents, annuity due payments

No changes to original estimate
Beginning of Year 1
At inception of lease:
debit
credit
Right-of-use asset
2,975.77
Liability for lease payments
2,475.77

Cash
Adjusted carrying value for right-to-use asset

2,975.77
2,975.77

500.00
2,975.77

## No adjustments to right to use asset

and liability since the difference between
predicted and actual is not significant

Amortization expense
Acc'd amortization
Gain (loss) on contingent rental*
Liability for lease payments
Interest expense
Liability for lease payments
Cash (final payment of cont. rent)

End of Year 1
debit
credit
595.15
595.15
85.00
487.42
247.58
650.00

1,330.15
1,330.15
*difference between predicted and actual conti
Total
End of Year 1
Impact on net income
-3,640.00
-757.73
Carrying value of right-to-use asset
2,380.61
Carrying value of liability to make lease payments
-2,638.34
Cumulative cash paid
-500.00
Net related balance sheet accounts
-757.73
Change in owners equity
-757.73

## Based on Example 9 in the 2009 Preliminary Views document

A lessee enters into a five-year lease of a retail store. The lease is non-cancellable and the
lessee has no option to extend the lease. The lessee is required to make fixed annual
payments of CU500 beginning at inception of the lease. In addition, the lessee is required to make pay
equal to 1 percent of sales from the leased store, paid at the end of the year. The lessee forecasts the
sales levels and assigns each outcome a probability:
Sales Level
Total forecast sales years 1 5 (CU)
Probability that forecast sales will occur
Probability weighted expected sales
Total contingent rentals 1% of forecast sales (CU)
Total fixed rentals years 1 5 (CU) - at CU 500 per ye
Total estimated rentals years 1 5 (CU)
Assume actual sales are as follows:
cont rent @
Year
sales
1%
1
15,000.00
150.00

10000
10%
1000
10
50.00
60.00

20000
60%
12000
120
300.00
420.00

2
3
4
5

21,000.00
23,000.00
25,000.00
30,000.00
114,000.00

210.00
230.00
250.00
300.00
1,140.00

PVELP
n=
i=
pmt=
fv=
Ann due
PVELP=
2,975.77

Fixed
5.00
10%
500.00
0.00
1.00
2,084.93

## Scenario 8 - no significant changes in contingent rents, annuity due payments

Revised amortization table - revision beginning of Year 4
ANNUITY DUE
r=
10%
LT=
5.00
type=
1.00
Beginning of
period
0
1
2
3
4
5
6
1

Fixed
Payment

500
500
500
500
500
0
2500

Estimated
Contingent
payment

Total
payment

0
235
235
250
250
250
1220

500
735
735
750
750
250
3720

Interest

0
247.576761
198.834438
148.948159
88.8429752
22.7272727
706.929606

Principal
Reduction

500
487.423239
536.165562
601.051841
661.157025
227.272727
3013.07039

## Scenario 8 - no significant changes in contingent rents, annuity due payments

Revisions made beginning of Year 4
Beginning of Year 1
At inception of lease:
debit
credit
Right-of-use asset
2,975.77
Liability for lease payments
2,475.77
Cash
500.00
Liability for lease payments
2,975.77
2,975.77
Adjustment to future expected contingent
2,975.77
rentals made a beginning of year 4
New forecast = CU 500 per year instead of CU 235.
Adjustment = CU 659
End of Year 1
debit
credit
Amortization expense
595.15
Acc'd amortization
595.15
Gain (loss) on contingent rental*
Liability for lease payments
Interest expense
Liability for lease payments
Cash (final payment of cont. rent)

85.00
487.42
247.58
650.00
1,330.15

1,330.15

Total
-3,640.00

## Impact on net income

Carrying value of right-to-use asset
Carrying value of liability to make lease payments
Cumulative cash paid
Net related balance sheet accounts
Change in owners equity

End of Year 1
-757.73
2,380.61
-2,638.34
-500.00
-757.73
-757.73

## Difference from "close enough" assumption

As percent of originally predicted payment

0.00
0%

## ancellable and the

fixed annual
lessee is required to make payments
year. The lessee forecasts the following

es Level
35000
30%
10,500.00

Expected
Value
100%
23,500.00
235.00
500.00
735.00

## NO significant change in conti

Originally predicted contingent rent =
If we had perfectly predicted the future:
r= 10%
LT= 5
Fixed
Contingent
Total
Period
Payment
payment
payment
Contingent
5.00
0
10%
1
500
0
500
235.00
2
500
150
650
0.00
3
500
210
710
0.00
4
500
230
730
890.83
5
500
250
750
se NPV for cash flows
6
300
300
layed in table:
1
2500
1140
3640
amortization expense per year =
due payments
Interest expense
Expense = cash outflows
2,975.77 Using NPV adj for annuity due
Actual
Difference to Actual cash
Balance
contingent
NI
outflows
rent
2975.76761
2475.76761
500.00
1988.34438
150.00
85.00
650.00
1452.17881
210.00
25.00
710.00
862.396694
230.00
5.00
730.00
213.636364
250.00
-15.00
750.00
3.2401E-012
300.00
-65.00
300.00
1,140.00
35.00
3,640.00
due payments
Beginning of Year 2
debit
credit
650.00

Beginning of Year 3
debit
credit
710.00

Beginning of Year 4
debit
credit
730.00

650.00
2,380.61

650.00
650.00

End of Year 2
debit
credit
595.15
595.15

710.00
1,785.46

End of Year 3
debit
credit
595.15
595.15

25.00
536.17
198.83

710.00
710.00

5.00
589.78
145.22

710.00

730.00
1,190.31

End of Year 4
debit
credit
595.15
595.15
15.00
648.76
86.24

730.00

1,330.15
1,330.15
1,330.15
1,330.15
en predicted and actual contingent rentals
End of Year 2
End of Year 3
-768.99
-735.37
1,785.46
1,190.31
-2,162.18
-1,592.40
-1,150.00
-1,860.00
-1,526.72
-2,262.09
-768.99
-735.37

730.00
730.00

750.00
1,345.15

1,345.15

End of Year 4
-696.39
595.15
-963.64
-2,590.00
-2,958.48
-696.39

## ancellable and the

fixed annual
lessee is required to make payments
year. The lessee forecasts the following

es Level
35000
30%
10500
105
150.00
255.00

r=
10%
LT=
5.00
Expected
Beginning of
Fixed
Contingent
Total
Value
period
Payment
payment
payment
0
23,500.00
1
500.00
0.00
500.00
235.00
2
500.00
250.00
750.00
500.00
3
500.00
250.00
750.00
735.00
4
500.00
250.00
750.00
5
500.00
250.00
750.00
6
250.00
250.00
1.00

2,500.00

1,000.00

3,750.00

Contingent
5.00
10%
235.00
0.00
0.00
890.83

2.00
3.00
10%
10%
500.00
500.00
0.00
0.00
1.00
0.00
954.55
1,243.43
2,197.97

## End of Year 4, Beginning of Year 5

2.00
10%
500.00
0.00
1.00
954.55
1,388.43

due payments
UITY DUE

Balance

2975.76761
2475.76761
1988.34438
-37.30 1489.48159
888.429752
227.272727
-1.279E-012

Revision 1,
predicted
payments

1,489.48
750.00
750.00
250.00

present
value of
revised
pymts

1,489.48

Balance
before

1,452.18

needed

37.30

rounding error

due payments
Beginning of Year 2
debit
credit

Beginning of Year 3
debit
credit

650.00
650.00
650.00
2,380.61

650.00

End of Year 2
debit
credit
595.15
595.15
-25.00
536.17
198.83

710.00
710.00
710.00
1,785.46

End of Year 3
debit
credit
595.15
595.15

End of Year 4
debit
credit
613.80
613.80

20.00

0.00

601.05
148.95
710.00

1,305.15

710.00

1,305.15

Beginning of Year 4
debit
credit
37.30
37.30
730.00
730.00
767.30
767.30
1,227.61

661.16
88.84
730.00

1,345.15

1,345.15

750.00
1,363.80

1,363.80

End of Year 2
End of Year 3
-768.99
-724.10
1,785.46
1,190.31
-2,162.18
-1,581.13
-1,150.00
-1,860.00
-1,526.72
-2,250.82
-768.99
-724.10
0.00
0%

11.27
2%

End of Year 4
-702.65
613.80
-977.27
-2,590.00
-2,953.47
-702.65
-6.25
-1%

## significant change in contingent rent examples (annuity due payments)

235
Not Signif. Scenario 7 Scenario 8 Scenario 7
type= 1
DUE
PERFECT
No
No
fv= 0.00
Forecast
Year 3
Principal
Total
Total
Total
Diff from
Interest
Balance
Reduction
expense
expense
expense
perfect
2924.6822
0
500 2424.6822
584.94
757.73
757.73
-29.5%
242.468224 407.531776 2017.1505
827.40
768.99
768.99
7.1%
201.715047 508.284953 1508.8655
786.65
735.37
724.10
6.5%
150.886551 579.113449 929.75207
735.82
696.39
702.65
5.4%
92.9752066 657.024793 272.72727
705.18
681.52
686.53
3.4%
27.2727273 272.727273
0
715.317756 2924.68224
3640
3640
3,640.00
ense per year =
584.94 2,924.68
average
-1.4%
various
715.32
3,640.00

Beginning of Year 5
debit
credit
750.00

Totals
2,975.77
364.23

750.00
595.15

750.00 -3,340.00
750.00
0.00

End of Year 5
Totals
debit
credit
595.15
2,975.77
595.15 -2,975.77
65.00
213.64
21.36

895.15

-35.00
2,475.77
699.23
-2,840.00
300.00
-300.00
895.15
0.00

End of Year 5
-681.52
0.00
0.00
-3,640.00
-3,640.00
-681.52

type=
fv=
Interest

0.00
0.00
Principal
Reduction

0.00
253.26
203.59
148.95
88.84
22.73

500.00
496.74
546.41
601.05
661.16
227.27

694.64

2,805.36

3,032.63
Balance
3,032.63
2,532.63
2,035.89
1,489.48
888.43
227.27
0.00

## of Year 4, Beginning of Year 5

2.00
10%
250.00
0.00
0.00
433.88

Actual
contingent

150.00
210.00
230.00
250.00
300.00

Diff dr/(cr)

85.00
25.00
20.00
0.00
-50.00
80.00

Beginning of Year 5
debit
credit

Actual
Cash Flows

500.00
650.00
710.00
730.00
750.00
300.00
3,140.00

Totals
3,013.07

750.00
750.00
613.80

750.00 -3,340.00
326.93
750.00
0.00

-3,640.00

End of Year 5
Totals
debit
credit
613.80
3,013.07
613.80 -3,013.07
50.00
227.27
22.73
300.00
1,213.80

-80.00
2,513.07
706.93
300.00 -2,840.00
300.00
-300.00
1,213.80
0.00

3,013.07
300.00

End of Year 5
-686.53
0.00
0.00
-3,640.00
-3,640.00
-686.53
-5.02
-1%

Scenario 8