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Accounting for leases

The supply of x-ray machines is part of Lessor Corp’s ongoing major or central operations. The
transaction qualifies as a sales-type lease. Other facts of the arrangement are:

Lease term 5 years (noncancellable)

Economic life 5 years

Payments from the customer $5/click of the x-ray machine to take an x-ray
Fixed maintenance fee of $2,000/year for 5 years (payable at
the end of each month)

Variable payments estimate during
the term of the arrangement $125,000

Fair value of the leased asset $100,000

Lessor Corp’s carrying value of the
leased asset $80,000

Estimated fair value of the leased $0
asset at the end of 5 years

Standalone price for leasing a $100,000
similar asset for 5 years

Standalone price for maintenance $10,000
for 5 years

Inception date and January 1
commencement date

Other Collection of payments from the customer is probable

The arrangement contains two components - a lease component (the lease of the x-ray machine) and a
nonlease component (the maintenance services).

Contract consideration is $10,000 ($2,000 × 5), which is the fixed amount for maintenance over the 5
years. Contract consideration excludes the $5/click because it relates to the lease component and is a
variable payment that does not depend on an index or a rate. Therefore, the supplier (lessor) would
allocate the contract consideration between the components under the new leases guidance as follows:

Allocation of
Allocation % contract
Standalone price (A/$110,000) consideration
Component (A) (B) (B*$10,000)

Lease $100,000 90.91% $9,091
Maintenance 10,000 9.09% 909

Total $110,000 100% $10,000

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