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Scope

specific counterpart; any readily available competitor product can be used without impacting
functionality.

The legal form of the arrangement is generally not relevant to this analysis; a master lease for multiple
assets is no more likely to be a single lease component than one with multiple leases.

Another factor to consider is how specialized the asset is. If use of the asset depends on additional
assets tailored to facilitate its use, this indicates that there is one component made up of multiple
assets. If a technology supplier develops a monitor that can be inserted into a computer for storage,
portability, and to charge the battery, the computer and monitor are likely one lease component
because they are dependent on each other for full functionality.

In many real-estate leases, the lessee leases the building and the land that the building sits on. In a
single tenant building, determination of the lease components may be straight forward. However,
lessees in a multi-tenant, multiple-story building will also need to evaluate whether there is a land
lease in the agreement. This assessment will typically depend on the significance of the tenant’s rights
under the contract, as a tenant in a multi-tenant building has the right to use a non-physically distinct
portion of the land on which the building is located. In this scenario, the tenant’s right to use a non-
physically distinct portion of the land would only be considered an identified asset (as discussed in LG
2.3.2.1) if the tenant had the rights to substantially all of the capacity of the land. For example, if the
tenant was leasing nine floors of a ten-story building, it would be reasonable to conclude that the right
to use the land in the arrangement is an identified asset. The arrangement would then contain a land
lease component provided the other criteria for a lease were met.

In arrangements that contain a land lease component, both the lessor and the lessee should consider
whether the land should be viewed as a separate lease component from the building. In general,
lessors and lessees should view the lease of land as a separate lease component unless the accounting
effect of doing so would be insignificant. For example, if separating the land component would have no
impact on lease classification of any lease component or the amount recognized for the land lease
component would be insignificant, the land component would not need to be separated from the
building component.

Example 2-18 illustrates how to evaluate components within an arrangement and whether those
components are lease or nonlease components.

EXAMPLE 2-18

Lease of a fully furnished office building

Customer Corp rents an office building from Landlord Corp for a term of 15 years. The rental contract
stipulates that the office is fully furnished and has a newly installed and tailored HVAC system. It also
requires Landlord Corp to perform all common area maintenance during the term of the arrangement.
Customer Corp makes one monthly rental payment and does not pay for the maintenance separately.

The office building has a useful life of 40 years and the HVAC system and office furniture each has a
life of 15 years.

What are the units of account in the lease?

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