On August 17, 2010 the Financial Accounting Standards Board (FASB) released its Proposed Accounting Standards Update (PASU) on Leases (Topic 840). The proposed requirements would affect virtually all entities that enter into leases. A summary of the proposed guidance follows.
For Lessees
- An asset would be recognized for its “right-to-use” the leased asset during the lease term
- A liability would be recognized for its obligation to make lease payments
- The “right-of-use” asset would be amortized over the lease term or useful life of the asset, whichever is shorter
- Interest expense would be incurred on the liability to make lease payments
For Lessors
- An asset would be recognized representing its right to receive lease payments
- A lease liability would be recognized (the performance obligation approach) where the lessor substantially retains the risks and benefits of the asset. The lessor satisfies the lease liability continuously over the lease term, and recognizes lease income in the same manner. The lessor does not derecognize the asset.
- The asset would be derecognized (the derecognition approach) if the risks and benefits of the asset are substantially transferred to the lessee. Under this approach, the lessor satisfies the lease liability at the beginning of the lease by delivering the right-of-use asset to the lessee. Lease income would represent the sale of the right to use the asset.
The PASU anticipates that transition will be accomplished on a simplified retroactive approach. All outstanding contracts as of the date of initial application are subject to this guidance. A proposed effective date for the standard is currently undetermined. To view the PASU in its entirety, please click here.
The professionals of PYA and Realty Trust Group are ready to discuss this and other matters related to accounting for leases and the proposed ASU with you. Please contact the expert listed below at 800.270.9629, and stay tuned for future Alerts regarding these matters.
