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Introduction

Topic ASC 842 guidance Observations
nonlease components when the
timing and pattern of transfer of
the components are identical, and
the lease classification would have
been an operating lease absent
the combination. If elected, the
combined components would be
accounted for under the guidance
for the predominant component.

Inception date Under ASC 842, the Under ASC 840, assumptions relevant to
versus determination of whether or not a classification and measurement are
commencement contract is a lease or contains a determined at lease inception.
date lease is done at the inception Recognition of rent expense or capital
date. Lease classification, lease assets and liabilities begin at the
recognition, and measurement commencement date.
are determined at the lease
commencement date.

Initial direct costs Under ASC 842, initial direct Under ASC 840, incremental direct costs
costs are defined as incremental can include internal costs as well as
costs of a lease that would not external costs such as legal fees, even if
have been incurred if the lease incurred before the lease was obtained.
had not been obtained. Certain incremental costs previously
eligible for capitalization will be expensed
under ASC 842.
Build-to-suit Ownership during construction ASC 840 guidance is based on a risks and
arrangements period based on a control model. rewards model, but contains several
complex prescriptive provisions designed
to assess lessee ownership during
construction. The ASC 842 model has
eliminated these prescriptive rules and
replaced them with a model based on
control.

Sale and leaseback Under ASC 842, a sale and Under ASC 840, sale and leaseback
transactions leaseback transaction will qualify accounting is applicable only to lessees.
as a sale only if: This includes detailed and specialized
guidance applicable to sale and
□ it meets the sale guidance in leasebacks involving real estate.
the new revenue recognition
standard, Under ASC 842, sale and leaseback
accounting will apply to lessees and
□ the leaseback is not a finance lessors. A “failed” sale is treated as a
lease, and financing by both the lessee and lessor
(i.e., the seller has not sold the asset but
□ if there is a repurchase has essentially mortgaged it). There is no
option, specialized guidance for sale and
leasebacks of real estate. However, a sale
o the repurchase price is at and leaseback for real estate that includes
the asset’s fair value at the a repurchase option will likely fail sale
time of exercise and accounting (as it did before ASC 842) as

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