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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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