Page 13 - pwc-lease-accounting-guide_Neat

Introduction

The dual model does not affect a lessee’s initial recognition of assets and liabilities on its balance sheet,
but differentiates how a lessee should recognize lease expense in the income statement. The
accounting for lessors is largely unchanged under the FASB and IASB models.

The following table includes a description of some of the most significant differences between the
guidance in ASC 842 and IFRS 16.

Figure 1-1
Summary of key differences between ASC 842 and IFRS 16

Topic Difference

Lessee accounting ASC 842 requires a lessee to classify a lease as either a finance or
operating lease. Interest and amortization expense are recognized for
finance leases while only a single lease expense is recognized for
operating leases, typically on a straight-line basis.
Under IFRS 16, lessees will account for all leases in a manner similar to
finance leases.

Lessor accounting Under ASC 842, a sale and related profit are recognized upon the
commencement of a lease only when the arrangement transfers control of
the underlying asset to the lessee, i.e., in a sales-type lease, but not in a
direct financing lease. Also, lessors may elect to combine certain nonlease
components into the related lease component.
Under IFRS 16, selling profit is recognized on direct financing leases
when performance obligations, defined in IFRS 15, Revenue from
Contracts with Customers, have been met. Under IFRS 16, generally
lessors may not combine lease and nonlease components.

Statement of cash flows ASC 842 requires lessees to report the single expense associated with an
operating lease as an operating activity.
Under IFRS 16, lessees account for all leases similar to a financed
purchase, with payments reported as a financing or operating activity in
the statement of cash flows, in accordance with IAS 7, Statement of Cash
Flows.

Remeasurement of The initial measurement of lease-related assets and liabilities is similar
variable lease under ASC 842 and IFRS 16; however, subsequent changes in lease
payments payments that vary with a rate or index (e.g., rents that increase for
changes in an inflation index) are accounted for differently.
Under ASC 842, such changes are recognized when incurred, unless the
lessee is otherwise required to remeasure the lease liability (e.g., as a
result of reassessing the lease term).
Under IFRS 16, lease assets and liabilities are remeasured whenever the
cash flow changes.

Sale and leaseback Under ASC 842, a seller-lessee would recognize the full gain from a sale
accounting and leaseback transaction that qualifies as a sale.
IFRS 16 limits the recognition of gains from sale and leaseback
transactions.

1-3