Hot Topics

KPMG’s Leases Hot Topics highlight some of the key implementation issues that are discussed in KPMG’s Leases Handbook. These focused Hot Topics are intended for practitioners with an interest in the detailed application of ASC 842.

Hot Topic: Lessor accounting for operating lease receivables

This Hot Topic addresses a series of questions about lessors’ accounting for operating lease receivables after the adoption of Topic 842.

Hot Topic: Lessor accounting for a supply agreement

Suppliers (lessors) providing ‘free’ use of their equipment to facilitate sales of goods generally will need to allocate a portion of the consideration for goods sales to the ‘free’ lease.

Hot Topic: Discount rates for lessees

Determining an appropriate lessee discount rate for a lease becomes more important under Topic 842. Frequently, it will be neither a straightforward exercise nor the same as under Topic 840.

Hot Topic: Embedded leases

Embedded leases in existing contracts may not have been identified; companies need to look critically at their current lease population as part of their adoption of Topic 842.

Hot Topic: Fair market rent adjustments

Fair market rent is an index; therefore, lease payments based on fair market rent are variable lease payments that depend on an index or rate.

Hot Topic: Lease accounting for variable payments

Allocating variable lease payments to lease and non-lease components may be an unexpected challenge for many lessees.

Hot Topic: Minimum rental payments

New lease liabilities and ROU assets recognized in transition include the fixed payments required for all periods that are part of the ‘lease term’, which includes reasonably assured renewal periods.

Hot Topic: Penalties and termination rights

Beware of the broad concept of a penalty under Topic 842 when considering the effect of termination rights on the lease term.

Hot Topic: Recognition threshold for leases

Companies should consider a number of factors before deciding whether to establish a lease recognition threshold and, if so, at what amount.

Hot Topic: Short-term lease exemption

We explore application questions surrounding the short-term lease exemption, and whether or not to elect the exemption.



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