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Effective date and transition

such components for existing leases (for the applicable class of underlying asset) upon adoption, and it
would no longer be appropriate to present the nonlease maintenance component (or the reimbursable
insurance and property taxes) in a separate tenant reimbursement income statement line item after
the effective date of ASC 842.

As for the comparative periods prior to adopting ASC 842, we believe that lessors that have elected the
transition method to not adjust prior periods should present their comparative periods as they had
before adopting ASC 842. We believe that the Board’s intent in providing the optional transition
method was to allow entities to continue to report leases for the comparative period as they had under
ASC 840.

10.5.5 Modification during comparative periods

Generally, when there is no change in lease classification, a lessor that elects to adjust comparative
periods will apply the modification guidance in ASC 840 for modifications that occur during the
comparative periods presented. If the lease classification changes, the lessor should use the
modification model in ASC 842 irrespective of whether the modification took place during the
comparative periods or after the effective date.

Question 10-15

Assume a lessor elects the package of practical expedients upon adoption of the leases standard and
chooses to adjust comparative periods. What is the accounting if an operating or sales-type or direct
financing lease under ASC 840 is modified during the look-back period?

PwC response
The transition provisions in ASC 842 do not provide any guidance on the accounting in this scenario.
We believe the lessor should follow the modification guidance in ASC 840 should there be a
modification of the lease during the look-back period. Modification guidance under the leases
standard should be followed for a modification after the look-back period.
10.6 Sale and leaseback

A transaction previously accounted for as a sale and leaseback under ASC 840 should not be
reassessed to determine whether it would have qualified as a sale (or purchase) under the guidance in
ASC 606. Lessees and lessors should account for the lease in any transaction that qualified as a sale
and leaseback in accordance with the lessee and lessor transition requirements. ASC 842-10-65-1 also
provides guidance on the accounting for any deferred gain or loss balance after transition.

ASC 842-10-65-1(dd)
If a previous sale and leaseback transaction was accounted for as a sale and capital leaseback in
accordance with Topic 840, the transferor shall continue to recognize any deferred gain or loss that
exists at the later of the beginning of the earliest comparative period presented in the financial
statements and the date of the sale of the underlying asset (if an entity elects the transition method in
(c)(1)) or that exists at the beginning of the reporting period in which the entity first applies the
pending content that links to this paragraph (if an entity elects the transition method in (c)(2)), as
follows:

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