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Effective date and transition

As discussed in LG 10.4.1, at transition for an operating lease, the lessee’s lease liability should be
calculated as the present value of the sum of (1) the remaining minimum rental payments (as defined
under ASC 840) and (2) any amounts probable of being owed by the lessee under a residual value
guarantee.

As discussed in LG 10.4.2, for capital leases, the lessee should reclassify the existing capital lease asset
as a right-of-use asset and the existing obligation as a lease liability.

When a company does not elect to use hindsight, it should continue to use the old lease payment data
under ASC 840 as required by ASC 842-10-65-1(l)(1) and 65-1(r)(1) in transition unless and until a
remeasurement triggering event occurs after the date of adoption of the leases standard (1/1/2019 for
a public calendar year-end company).

The following table shows how a lessee should consider the occurrence of a triggering event that
occurs prior to the effective date of the leases guidance in the transition for an operating lease. For
purposes of the dates in the table, assume a public calendar year-end company is adopting the
standard on 1/1/2019.

Figure 10-2
Triggering events that occur prior to the effective date (public calendar year-end company)

Triggering event
occurs on
12/31/2018 or Hindsight practical expedient Hindsight practical expedient
earlier is not elected is elected
The entity chooses to At transition on 1/1/2019, At transition on 1/1/2019, calculate
not adjust comparative calculate the transition lease the transition lease liability and
periods liability and right-of-use asset right-of-use asset based on revised
based on the old lease payment information considering the
data under ASC 840. Refer to LG triggering event. Refer to LG
10.4.1 and LG 10.4.2 for transition 10.3.1.2, LG 10.4.1, and LG 10.4.2.
accounting for operating and Differences between the lease
capital leases, respectively. liability and the right-of-use asset
Differences between the lease not otherwise specified would be
liability and the right-of-use asset recorded in opening equity.
not otherwise specified would be
recorded in opening equity.

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