Lease Accounting Update January 2013: Lease Components in a Single Lease Contract
The FASB and the IASB ("The Boards") met on January 30, 2013 to continue further deliberations on the Lease
Accounting
Project. The discussions were narrowly focused on the instances where multiple lease components are contained in a
single lease contract. As examples, multiple pieces of equipment could be leased under a single lease contract, a
single
lease contract could contain both property and non-property components or land and building(s) could be leased under
a
single lease contract. The central issue discussed revolves around whether individual lease components in a single
lease contract must be accounted for separately. The Boards tentatively concluded that for components that are
distinct
from other goods and services in the lease contract and the components are not customized to meet the particular
needs
of the customer, those distinct components should be accounted for separately. A single lease that contains
components
(for example, property and non-property) that are customized and integrally related would be accounted for as a
single
lease contract. Land and building(s) contained in separate lease contract would be treated a single component and
would
not be allocated (a difference from current GAAP treatment).
For a lease contract that contains both property
and
non-property and must be accounted for as a single component, an additional issue deliberated was which lease
classification test would apply in these circumstances. The Boards tentatively concluded that the lease
classification
of the primary (predominant) asset would determine the lease classification. Therefore, if the equipment was deemed
to
be the primary asset, the presumption would be that the accelerated amortization method would be used whereas if the
property was deemed to be the primary asset, the straight-line method would be presumed to apply.
From the
previous example, it is clear that any technology solution that a lessee chooses to employ to comply with the new
lease
accounting standard should be capable of tracking and accounting for both property and non-property (equipment)
components. We at iLeasePro have anticipated this need and are developing our lease management and accounting
technology
product as an integrated solution for both property and equipment.
The Boards additionally indicated that
they
plan to issue a revised Exposure Draft ("ED") by the end of March 2013 which will be open for comment for a period
of
time. Redeliberations and discussion of comments on the revised ED will begin in the second half of 2013.
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