FASB proposed and issued Accounting Standards Updates that would address challenges that lessors may encounter as they implement the board's new lease accounting standard.
The board proposed an update that would align the guidance for fair value of the underlying asset with existing guidance for lessors that are not manufacturers or dealers in FASB ASC Topic 842, Leases. As a result, the fair value of the underlying asset at lease commencement would be its cost, reflecting any volume or trade discounts that may apply.
However, if there has been a significant lapse of time between the acquisition of the underlying asset and the commencement of the lease, the definition of fair value in Topic 820, Fair Value Measurement, would be applied under the proposal.
The proposal also would require lessors within the scope of Topic 942, Financial Services — Depository and Lending, to present all "principal payments received under leases" within investing activities.
FASB also issued an Accounting Standards Update (ASU) that clarifies how to apply the new leases standard when accounting for sales taxes, certain lessor costs, and certain requirements related to variable payments in contracts.
ASU No. 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, should reduce lessors' implementation and ongoing costs related to the new leases standard, according to a FASB news release. The standard:
- Allows lessors to make an accounting policy election to not evaluate whether certain sales taxes or other similar taxes are lessor costs or lessee costs.
- Requires lessors to exclude from variable payments, and therefore revenue, lessor costs paid by lessees directly to third parties.
- Changes the method for recognizing variable payments for contracts with lease and nonlease components.