Enter the remaining lease liability balance and the specific discount rate for up to 5 individual leases to calculate the portfolio weighted average.
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Remaining Lease Liability ($)
Discount Rate (%)
1
2
3
4
5
Please enter valid numeric values for at least one lease.
Weighted Average Discount Rate
0.00%
Total Lease Liability: $0.00
function calculateWADR() {
var totalProduct = 0;
var totalLiability = 0;
var validRows = 0;
var hasError = false;
// Reset display
document.getElementById('error-message').style.display = 'none';
document.getElementById('result-box').style.display = 'none';
// Loop through 5 inputs
for (var i = 1; i <= 5; i++) {
var liabInput = document.getElementById('liability' + i).value;
var rateInput = document.getElementById('rate' + i).value;
// Only process if both inputs in the row have data
if (liabInput !== "" && rateInput !== "") {
var liability = parseFloat(liabInput);
var rate = parseFloat(rateInput);
if (isNaN(liability) || isNaN(rate) || liability < 0 || rate < 0) {
hasError = true; // Flag invalid numbers
} else {
// Calculation logic: Sum of (Liability * Rate)
totalProduct += (liability * rate);
totalLiability += liability;
validRows++;
}
}
}
if (hasError) {
document.getElementById('error-message').innerText = "Please ensure all entered values are positive numbers.";
document.getElementById('error-message').style.display = 'block';
return;
}
if (validRows === 0 || totalLiability === 0) {
document.getElementById('error-message').innerText = "Please enter data for at least one lease with a liability greater than zero.";
document.getElementById('error-message').style.display = 'block';
return;
}
// Final Calculation: Sum(Liab * Rate) / Sum(Liab)
var weightedAverage = totalProduct / totalLiability;
// Display Results
document.getElementById('final-rate').innerHTML = weightedAverage.toFixed(3) + '%';
// Format Currency
var currencyFormatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 2
});
document.getElementById('total-liability').innerHTML = currencyFormatter.format(totalLiability);
document.getElementById('result-box').style.display = 'block';
}
Understanding the Weighted Average Discount Rate for Leases
Under modern lease accounting standards, specifically ASC 842 (US GAAP) and IFRS 16, companies are required to recognize most leases on their balance sheets. A critical component of these quantitative disclosures is the calculation of the Weighted Average Discount Rate (WADR).
This metric provides financial statement users with insight into the cost of financing the company's lease portfolio. Unlike a simple average, a weighted average accounts for the size of each lease liability relative to the total portfolio, ensuring that larger leases have a proportionate impact on the disclosed rate.
How to Calculate Weighted Average Discount Rate
The calculation involves weighting the discount rate of each individual lease by its remaining lease liability balance. The formula is as follows:
Identify Liability: Determine the remaining lease liability balance for every lease in the portfolio (or specific asset class) as of the reporting date.
Identify Rate: Determine the discount rate used for each lease. This is typically the Incremental Borrowing Rate (IBR) or the Rate Implicit in the Lease determined at commencement.
Multiply: For each lease, multiply the Liability Balance by the Discount Rate.
Sum Products: Add up all the results from the multiplication step.
Sum Liabilities: Add up all the remaining lease liability balances.
Divide: Divide the Sum of Products by the Sum of Liabilities to get the Weighted Average Discount Rate.
Why is this Calculation Important?
Compliance with ASC 842 & IFRS 16: Quantitative disclosures require the weighted average discount rate to be presented in the footnotes of financial statements. It helps investors assess the company's interest rate risk and cost of capital regarding leased assets.
Portfolio Analysis: Beyond compliance, this metric helps treasury and finance teams understand the aggregate cost of their leasing activities. A rising WADR may indicate deteriorating credit terms or a higher interest rate environment affecting new leases.
Example Calculation
Consider a company with a portfolio of three leases:
Notice that even though Lease C has a high rate of 8%, the weighted average (4.62%) is much closer to Lease A's rate (4%) because Lease A constitutes the majority of the financial liability.