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Scope

guidance, and the amount of variable payments allocated to nonlease components would be
recognized in accordance with other guidance, such as the revenue recognition guidance.

As of the cut-off date of this guide, the proposed amendments have not yet been issued. Reporting
entities should continue to monitor the status of these proposed amendments and any additional
updates to the new leases guidance. The variable payment accounting model described within this
chapter is based on the guidance in ASC 842-10-15-40 as currently written.

2.4.6.1 Allocating variable consideration for lessors

Figure 2-4 summarizes the allocation of variable consideration for lessors. When determining contract
consideration for lease and nonlease components, variable payments not based on an index or a rate
should only be considered provided they relate solely to nonlease goods and services. If they do, the
variable payments should be estimated and, provided they meet the transaction price allocation
objective specified in ASC 606, allocated to the nonlease components. If the variable payments relate
at least partially to the lease component, they are recognized in the period in which the underlying
event occurs and are allocated to the lease and nonlease components on the same basis as the initial
allocation of consideration. ASC 842-10-15-39 and 15-40 provide guidance on allocating variable
payments to nonlease components.

ASC 842-10-15-39

The consideration in the contract for a lessor includes all of the amounts described in paragraph 842-
10-15-35 and any other variable payment amounts that would be included in the transaction price in
accordance with the guidance on variable consideration in Topic 606 on revenue from contracts with
customers that specifically relates to either of the following:
a. The lessor’s efforts to transfer one or more goods or services that are not leases
b. An outcome from transferring one or more goods or services that are not leases.

Any variable payment amounts accounted for as consideration in the contract shall be allocated
entirely to the nonlease component(s) to which the variable payment specifically relates if doing so
would be consistent with the transaction price allocation objective in paragraph 606-10-32-28.

ASC 842-10-15-40
If the terms of a variable payment amount other than those in paragraph 842-10-15-35 relate to a lease
component, even partially, the lessor shall recognize those payments as income in profit or loss in the
period when the changes in facts and circumstances on which the variable payment is based occur (for
example, when the lessee’s sales on which the amount of variable payment depends occur).

In light of the different models applicable to lease- and nonlease-related variable consideration, the
first step in accounting for variable lease payments is to determine whether the payments relate, even
partially, to a lease element. To do this, we believe it would be appropriate to analyze the factors that
drive the variability of the payments. To practically analyze this, the factors that determine the amount
and whether a variable payment is made should be understood. These factors could be physical
factors, such as machine hours, equipment usage time, or number of items sold. They could also be
based on economic factors, such as sales revenues and profits.

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