Defining Issues  |   February 2019
 

FASB approves targeted changes to lessor accounting

KPMG reports on leasing decisions made by the FASB at its February 13, 2019 meeting. The FASB approved finalizing its proposed amendments to 1) reinstate guidance from ASC 840 on measuring the fair value of the underlying asset for lessors that are not manufacturers or dealers, and 2) require lessors in the scope of ASC 942 to present the principal portion of lessee payments as cash flows from investing activities in the statement of cash flows. The FASB also clarified the ASC 842 interim transition disclosure requirements. 

Applicability

Proposed ASU on ASC 842

  • Fair value of underlying asset. Lessors that are not manufacturers or dealers.
  • Cash flow presentation. Lessors that are depository or lending institutions in the scope of ASC 942 (financial services – depository and lending) that enter into sales-type or direct financing leases.
  • Interim period transition disclosure requirements. All companies adopting ASC 842 that have interim reporting requirements. 

Relevant dates

  • Q1-2019 – ASU expected to be issued  
  • Relevant dates for final standards / amendments (see above):
Proposed effective date:  Public business entities All other entities
Annual periods – Fiscal years beginning after December 15, 2019 December 15, 2019
Interim periods – In fiscal years beginning after December 15, 2019 December 15, 2020
Early adoption allowed? Yes Yes

 

Key impacts

The amendments approved by the FASB will:

  • Reinstate the specific fair value guidance in ASC 840 for lessors that are not manufacturers or dealers that ordinarily requires them to measure the fair value of an underlying asset at its cost, reflecting any volume or trade discounts that may apply, and including costs incurred to acquire the asset (e.g. sales taxes and delivery costs).
  • Require lessors that are depository or lending institutions in the scope of ASC 942 to present the principal portion of lessee payments made on sales-type or direct financing leases as cash flows from investing activities, and the interest portion as cash flows from operating activities.
  • Clarify that companies are exempt from the interim period transition disclosure requirements in paragraph 250-10-50-3 when adopting ASC 842  

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