Liability for unearned rentals

Question

Being a lessor of a building under a legal contract, tenant is bound to make advance payment annually. Can i record a liability(unearned rentals) and receivable, if the tenant delays the payment.

For Example after completion of First Month accounting treatment would be:

Receivable (12 months rent)
Income (1 month)
Unearned rentals (11 month)

Please guide in line with the IFRS provisions.

Answer 1

Yes, under IFRS, a lessor can record a liability for unearned rentals and a receivable for advance payments made by a tenant under a legal contract. The accounting treatment would be to recognize the advance payment as a receivable and income for the current period, and to recognize the unearned portion as a liability. This is in line with the principle of revenue recognition, which states that revenue should be recognized when it is earned, and not when it is received.