Defining Issues   |   December 2018
 

FASB issues ASU amending lessor accounting for sales and similar taxes and certain lessor costs

Filed under: Leases

KPMG reports that the FASB has issued a final ASU making narrow-scope improvements to lessor accounting under ASC 842. The amendments create a lessor practical expedient applicable to sales and other similar taxes incurred in connection with a lease, and simplify lessor accounting for lessor costs paid by the lessee.

Applicability

ASU 2018-20

  • Sales and other similar taxes. Lessors that enter into leases that give rise to sales and other similar taxes
  • Lessor costs paid by lessee to a third party. Lessors with leases for which the lessee pays lessor costs directly to a third party
  • Lessor costs paid by lessee to the lessor. Lessors in leases for which the lessee pays lessor costs as part of the fixed lease payments or reimburses the lessor for such costs
  • Variable payments allocable to lease and non-lease components. Lessors in leases that give rise to variable payments at least partially allocable to a non-lease component

Relevant dates

  • Effective date coincides with the effective date of the new leases standard for companies that have not early adopted
  • For companies that have early adopted, the amendments can be applied retrospectively or prospectively, and can be elected as of the:
    • beginning of the financial reporting period in which the ASU is issued
    • beginning of the first financial reporting period after issuance of the ASU; or
    • original mandatory effective date of ASC 842 for the company

Key impacts

  • Permits lessors, as an entity-wide accounting policy election, to present sales and other similar taxes that arise from a specific leasing transaction on a net basis
  • Requires lessors to present lessor costs paid by the lessee directly to a third party on a net basis – regardless of whether the lessor knows, can determine or can reliably estimate those costs 
  • Requires lessors to present lessor costs paid by the lessee to the lessor (e.g. through reimbursement or as part of the fixed lease payments) on a gross basis
  • Clarifies that lessors should recognize variable payments allocable to non-lease components as revenue in accordance with relevant other US GAAP (e.g. ASC 606)

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