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Effective date and transition

Question 10-2

Does the leases standard need to be applied to leases that exist as of the beginning of the earliest
comparative period presented but expire or terminate before the effective date?

PwC response
It depends. For reporting entities that choose to apply the transition method in which prior
comparative periods are adjusted, we believe leases that exist as of the beginning of the earliest period
presented and expire or terminate before the effective date are subject to the new standard in a
reporting entity’s comparative financial statements upon adoption. For example, a calendar year-end
public company choosing to adjust comparative periods and adopting the leases standard on 1/1/2019
should apply the new standard to a lease that existed on 1/1/2017 and expired in 2018.

For reporting entities that choose not to adjust prior comparative periods, the leases standard does not
need to be applied to leases that terminate prior to the effective date.

10.3.1 Practical expedients

ASC 842 provides various optional transition practical expedients. A reporting entity is required to
disclose the use of any of the practical expedients. In summary, these include:

□ a package of practical expedients to not reassess:

o whether a contract is or contains a lease
o lease classification
o initial direct costs
□ a practical expedient to use hindsight when determining lease term

□ a practical expedient to not reassess certain land easements

Each of these expedients is explained in more detail in subsequent sections.

10.3.1.1 Package of practical expedients

ASC 842-10-65-1 provides a group of optional practical expedients that must be elected as a package
and applied by a reporting entity to all of its leases consistently regardless of whether the entity is a
lessee or lessor.

ASC 842-10-65-1(f)
An entity may elect the following practical expedients, which must be elected as a package and applied
consistently by an entity to all of its leases (including those for which the entity is a lessee or a lessor),
when applying the pending content that links to this paragraph to leases that commenced before the
effective date:

1. An entity need not reassess whether any expired or existing contracts are or contain leases

10-4