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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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