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Introduction

Topic ASC 842 guidance Observations
o alternative assets that are all real estate is unique and no other asset
substantially the same as would be substantially the same.
the transferred asset are Sale and leaseback transactions involving
readily available in the equipment frequently have fixed price
marketplace. repurchase options – often at the request
of the seller-lessee for commercial
reasons. Such transactions will not
qualify as a sale under the new standard.
However, sale and leaseback accounting
applied for transactions executed prior to
the effective date will not need to be
reevaluated. Existing “failed” sales will be
evaluated under the new standard and
may qualify for sale and leaseback
accounting on transition.

Lessee A lessee is required to reassess ASC 840 does not require a reassessment
reassessment the lease term if a triggering event of lease classification unless the lease is
occurs that is under the lessee’s modified or an option is exercised. Under
control or an option is ASC 842, a lessee will need to monitor for
exercised/not exercised as triggering events on an ongoing basis.
planned. A change to the lease
term will lead to a reassessment
of lease classification and
remeasurement of the lease
liability and right-of-use asset.
Assumptions such as the discount
rate and variable rents based on a
rate or index will be updated as of
the remeasurement date.

Modification A lease modification is a change Lease modifications under ASC 840 can
to the contractual terms and be very complex and difficult to
conditions of a lease that was not differentiate from a termination of a lease
part of the original lease and that contract. A renewal or extension is
results in a change in scope or considered a new lease. All other changes
consideration. A modification that are subject to a two-step evaluation of the
grants the lessee an additional lease.
right of use priced at market is a
separate lease that is then
classified at the lease modification
date.
When an arrangement is
modified, entities may have to
reassess whether the arrangement
contains a lease, and they may
have to reallocate contract
consideration between the lease
and nonlease components.

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