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Scope

EXAMPLE 2-6

Easements – unit of account

On January 1, Tower Company enters into an arrangement to obtain the right to access land owned by
Landowner for 40 years. The land is located in Iowa and is used by Landowner to grow various crops.
The contract provides the right for Tower Company to access a specific plot of land measuring 10
acres. The contract also provides Tower Company with the right to construct a tower on an identified
subsection of the 10-acre plot.

In accordance with the contract, Landowner has the ability to use the space not occupied by Tower
Company’s assets for its own purposes, as long as the activities of Landowner do not interfere with the
operation of Tower Company’s tower. Landowner does not have the ability to access the specified
portion of the plot of land where the tower will be built.

What is the unit of account for assessing whether the agreement is or contains a lease?

Analysis

In this fact pattern, we believe there are two units of account.

The contract provides for surface land rights and conveys different rights between the site for the
tower and the remainder of the acreage. Tower Company has exclusive use of the parcel where the
tower will be constructed and shared access to the remaining property. Therefore, the agreement
contains two units of account.

Tower Company would need to evaluate both the subsection of the land where the tower will be built
and the remaining space not occupied by the tower to determine if either meets the definition of a
lease. The agreement specifies the location of both units of account. As such, each is considered an
identified asset. Tower Company has exclusive use of the specified parcel where the tower will be built,
and thus has the ability to both (1) direct how this identified asset is used and (2) obtain substantially
all of the economic benefits from it. As such, Tower Company has the right to control the use of that
parcel of land, and the agreement contains a lease. Use of the remaining portion of the 10-acre land
parcel is shared between Tower Company and Landowner. As such, Tower Company would need to
evaluate whether it has the right to control the use of that portion of the land.

Tower Company would determine the stand alone selling prices for each unit of account at inception
and would allocate consideration based on those amounts. Tower Company would recognize the
consideration allocated to the tower site when the lease begins.

EXAMPLE 2-7

Easements – subsection not identified at inception

Consider a similar fact pattern as Example 2-6, but assume the subsection of land on which the tower
will be constructed is not determined until June 30 (six months after the January 1 inception).

What is the unit of account for assessing whether the arrangement is or contains a lease?

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