Defining Issues   |   August 2018
 

FASB issues proposed ASU on narrow-scope improvements for lessors

KPMG reports on the FASB’s proposed ASU on narrow-scope improvements for lessors. The proposed amendments address operational issues for lessors related to sales taxes, lessee payments of lessor costs, and variable payments in contracts with lease and non-lease components.

Applicability

Proposed ASU on ASC Topic 842

  • Sales and other similar taxes – lessors that enter into leases that give rise to sales and other similar taxes
  • Lessor costs paid by lessee – lessors with leases for which the lessee pays lessor costs
  • Variable payments – lessors with variable payments in contracts with lease and non-lease components

Relevant dates

  • August 13, 2018 – FASB issued proposed ASU
  • September 12, 2018 – comments due on proposed ASU

Key impacts

The proposed ASU would:

  • Add a practical expedient to permit lessors to present collections of sales and other similar taxes that arise from a specific lease transaction on a net basis
  • Require that a lessor present lessor costs and payments thereof made by the lessee (directly to a third party) on a net basis when the lessor cannot readily determine those costs
  • Clarify that:
    • lessors should allocate variable payments between the lease and non-lease components of a lease contract based on the allocation guidance in Topic 606; and
    • the timing of a lessor’s revenue recognition of the portion of such payments allocated to Topic 606 non-lease components is governed by the guidance in Topic 606

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