A Roadmap To Applying The New Leasing Standard-Books Pdf

A Roadmap to Applying the New Leasing Standard
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The FASB Accounting Standards Codification material is copyrighted by the Financial Accounting Foundation 401 Merritt 7 PO Box 5116 Norwalk CT. 06856 5116 and is reproduced with permission, This publication contains general information only and Deloitte is not by means of this publication rendering accounting business financial investment. legal tax or other professional advice or services This publication is not a substitute for such professional advice or services nor should it be used as a. basis for any decision or action that may affect your business Before making any decision or taking any action that may affect your business you should. consult a qualified professional advisor Deloitte shall not be responsible for any loss sustained by any person who relies on this publication. The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas however due. to independence restrictions that may apply to audit clients including affiliates of Deloitte Touche LLP we may be unable to provide certain services. based on individual facts and circumstances, As used in this document Deloitte means Deloitte Touche LLP Deloitte Consulting LLP Deloitte Tax LLP and Deloitte Financial Advisory Services LLP. which are separate subsidiaries of Deloitte LLP Please see www deloitte com us about for a detailed description of our legal structure Certain services. may not be available to attest clients under the rules and regulations of public accounting. Copyright 2020 Deloitte Development LLC All rights reserved. Publications in Deloitte s Roadmap Series, Business Combinations. Business Combinations SEC Reporting Considerations. Carve Out Transactions, Comparing IFRS Standards and U S GAAP. Consolidation Identifying a Controlling Financial Interest. Contingencies and Loss Recoveries, Contracts on an Entity s Own Equity.
Convertible Debt, Current Expected Credit Losses, Disposals of Long Lived Assets and Discontinued Operations. Distinguishing Liabilities From Equity, Earnings per Share. Environmental Obligations and Asset Retirement Obligations. Equity Method Investments and Joint Ventures, Equity Method Investees SEC Reporting Considerations. Fair Value Measurements and Disclosures, Foreign Currency Transactions and Translations. Income Taxes, Initial Public Offerings, Noncontrolling Interests.
Non GAAP Financial Measures, Revenue Recognition, SEC Comment Letter Considerations Including Industry Insights. Segment Reporting, Share Based Payment Awards, Statement of Cash Flows. Acknowledgments, This Roadmap reflects the thoughts and contributions of the leases team in Deloitte s National Office. as well as the input from the many auditors and advisers in the Deloitte network James Barker Kristin. Bauer Michael Gorter Pat Johnson and Zack Weston supervised the overall preparation of the 2020. update to this Roadmap and extend their deepest appreciation to the core development team Ann. Airington Chris Chiriatti Brandon Coleman Amy Park Ryan Pringle Bob Uhl and Amy Winkler. They would also like to acknowledge the members of our Production group for their contributions. especially Joe Renouf the Roadmap s technical editor who has somehow made over 900 pages of. accounting speak understandable Geri Driscoll and Jeanine Pagliaro who checked and double. checked our work and Teri Asarito and Dave Frangione who tirelessly created the professional images. and graphics seen throughout the publication, In addition they would like to thank all the professionals in Deloitte s Accounting and Reporting Services. Accounting and Reporting Advisory and Audit Services groups who contributed to this publication. particularly Gina Bruner Joe DiLeo Lauren Hegg Tim Kolber Christine Mazor Stephen McKinney. Ignacio Perez Lauren Pesa Doug Rand and Ruth Uejio. Preface xviii, Contacts xx, Chapter 1 Overview 1, 1 1 Background 1.
1 2 Overview 3, 1 3 Key Provisions 5, Chapter 2 Scope and Scope Exceptions 8. 2 1 Property Plant and Equipment 9, 2 2 Scope Exclusions 9. 2 2 1 Leases of Intangible Assets 11, 2 2 2 Leases to Explore for or Use Nonregenerative Resources and Leases of Biological Assets 11. 2 2 3 Leases of Inventory 13, 2 2 4 Leases of Assets Under Construction 13. 2 2 5 Other Scope Exclusions 14, 2 2 5 1 Service Concession Arrangements 14.
2 2 5 2 Noncore Assets and Capitalization Policy Considerations 14. 2 3 Interaction With Other Accounting Standards 17. 2 3 1 ASC 606 Revenue From Contracts With Customers 17. 2 3 1 1 Repurchase Agreements 17, 2 3 2 ASC 815 Derivatives and Hedging 19. 2 3 2 1 Derivatives Embedded in a Lease 20, 2 3 2 2 Residual Value Guarantees 21. 2 4 Land Easements 22, 2 4 1 Background 22, 2 4 2 Scope 23. 2 4 3 Identifying a Lease 24, 2 4 3 1 Perpetual Easements 24. 2 4 3 2 Term Based Easements 24, Deloitte A Roadmap to Applying the New Leasing Standard 2020.
Chapter 3 Identifying a Lease 28, 3 1 Introduction 29. 3 2 Definition of a Lease 30, 3 2 1 Process for Identifying a Lease 30. 3 2 2 Embedded Leases 34, 3 2 2 1 Embedded Leases and Service Providers 35. 3 2 3 Joint Operations or Joint Arrangements 38, 3 3 Identified Asset 40. 3 3 1 Explicitly and Implicitly Specified Assets 42. 3 3 2 Portions of Assets Capacity and Physical Distinctness 43. 3 3 3 Substantive Substitution Rights 51, 3 3 3 1 Practical Ability to Substitute Alternative Assets 53.
3 3 3 2 Economic Benefit From Exercise of Substitution Rights 56. 3 3 3 3 Warranty or Upgrade Considerations 58, 3 3 3 4 Presumption That Substitution Right Is Not Substantive 59. 3 3 3 5 Exercising Substitution Rights 60, 3 4 Right to Control the Use of the Identified Asset 61. 3 4 1 Right to Obtain Substantially All of the Economic Benefits 64. 3 4 1 1 Economic Benefits That Result From Use of the Asset 65. 3 4 1 2 Identifying Which Economic Benefits From Use Are Within the Scope of the. Customer s Right to Use the Asset in the Contract 69. 3 4 1 3 Obtaining Substantially All of the Economic Benefits From Use 70. 3 4 2 Right to Direct the Use 76, 3 4 2 1 How and for What Purpose the Asset Is Used Throughout the Period of Use 79. 3 4 2 2 Protective Rights Define the Scope of the Contract 93. 3 4 2 3 How and for What Purpose the Asset Is Used Throughout the Period of Use Is. Predetermined 94, 3 4 2 4 Power Over How and for What Purpose the Asset Is Used Throughout the Period. of Use Is Shared 100, 3 5 Period of Use 101, 3 6 Reassessment of Whether a Contract Is or Contains a Lease 102.
3 7 Codification Examples 102, 3 7 1 Example 1 Rail Cars 103. 3 7 2 Example 2 Concession Space 104, 3 7 3 Example 3 Fiber Optic Cable 105. 3 7 4 Example 4 Retail Unit 106, 3 7 5 Example 5 Truck Rental 107. 3 7 6 Example 6 Ship 108, 3 7 7 Example 7 Aircraft 109. 3 7 8 Example 8 Contract for Shirts 110, 3 7 9 Example 9 Contract for Energy Power 111.
3 7 10 Example 10 Contract for Network Services 113. 3 8 Decision Tree for Identifying a Lease 114, Chapter 4 Components of a Contract 115. 4 1 Introduction 116, 4 2 Identify the Separate Lease Components 117. 4 2 1 Separating Lease Components 120, 4 2 2 Land and Other Assets 121. 4 2 3 Applying the Guidance on Separate Lease Components 126. 4 3 Identify the Separate Nonlease Components 130, 4 3 1 Nonlease Components 135. 4 3 2 Noncomponents 140, 4 3 3 Practical Expedients 147.
4 3 3 1 Lessees 147, 4 3 3 2 Lessors 149, 4 4 Determining and Allocating Consideration in the Contract 160. 4 4 1 Lessee 161, 4 4 1 1 Determining the Consideration in the Contract 162. 4 4 1 2 Allocating the Consideration in the Contract 165. 4 4 1 3 Remeasure and Reallocate the Consideration in the Contract 169. 4 4 2 Lessor 170, 4 4 2 1 Determining the Consideration in the Contract 170. 4 4 2 2 Allocating the Consideration in the Contract 180. 4 4 2 3 Remeasure and Reallocate Consideration 199. 4 4 3 Codification Examples 199, 4 5 Contract Combinations 204. Chapter 5 Commencement Date Lease Term and Purchase Options 208. 5 1 Commencement Date of a Lease 209, 5 1 1 Lease Commencement Date for Master Lease Agreements 210.
5 2 Lease Term 210, 5 2 1 Noncancelable Period and Enforceable Period 211. 5 2 2 Periods Covered by Options Reasonably Certain 213. 5 2 2 1 Contract Based Factors 215, 5 2 2 2 Asset Based Factors 217. 5 2 2 3 Entity Based Factors 218, 5 2 2 4 Market Based Factors 218. 5 2 3 Periods Within the Control of the Lessor 218. 5 2 4 Application of the Lease Term Guidance 218, 5 2 4 1 Cancelable Leases 218. 5 2 4 2 Evergreen Leases 219, 5 2 4 3 Short Term Leases 219.
5 2 4 4 Impact of a Sublease on Lease Term 219, 5 2 4 5 Lease Term When a Lease Consists of Nonconsecutive Periods of Use 219. 5 2 4 6 Fiscal Funding Clauses 221, 5 2 4 7 Examples Illustrating the Lease Term Guidance 222. Deloitte A Roadmap to Applying the New Leasing Standard 2020. 5 3 Purchase Options 223, 5 4 Reassessment of Lease Term and Purchase Options 223. 5 4 1 Lessees 223, 5 4 1 1 Reassessing the Lease Term and Purchase Options Upon Construction of. Leasehold Improvements 227, 5 4 2 Lessors 227, Chapter 6 Lease Payments 229.
6 1 General 230, 6 2 Fixed Payments 235, 6 2 1 In Substance Fixed Payments 235. 6 2 2 Lease Incentives 237, 6 3 Variable Lease Payments That Depend on an Index or a Rate 240. 6 4 Exercise Price of a Purchase Option Reasonably Certain to Be Exercised 247. 6 5 Penalties for Terminating a Lease 248, 6 6 Fees Paid by the Lessee to Owners of Special Purpose Entities 249. 6 7 Amounts That It Is Probable That the Lessee Will Owe Under a Residual Value Guarantee 249. 6 7 1 Residual Value Guarantee Obtained From Unrelated Third Party 252. 6 8 Costs Imposed to Dismantle and Remove an Underlying Asset at End of Lease Term 254. 6 9 Amounts Not Considered a Lease Payment 254, 6 9 1 Variable Lease Payments That Do Not Depend on an Index or Rate 254. 6 9 2 Lessee s Guarantee of the Lessor s Debt 258, 6 9 3 Amounts Allocated to Nonlease Components 259.
6 9 4 Obligations to Return an Underlying Asset to Its Original Condition 260. 6 9 5 Indemnification Clauses for Certain Tax Benefits 261. 6 10 Subsequent Measurement of Lease Payments 262, 6 11 Initial Direct Costs 267. Chapter 7 Discount Rates 272, 7 1 General 273, 7 1 1 Rate Implicit in the Lease 274. 7 1 2 Incremental Borrowing Rate 275, 7 2 Determination of the Discount Rate for Lessees 276. 7 2 1 Initial Determination of the Discount Rate 276. 7 2 2 Reassessment of the Discount Rate 280, 7 2 3 Use of a Risk Free Rate by Lessees That Are Not PBEs 281. 7 2 4 Incremental Borrowing Rate Used at a Subsidiary Level 281. 7 2 5 Determining a Discount Rate at a Portfolio Level 283. 7 3 Determination of the Discount Rate for Lessors 284. 7 3 1 Initial Determination of the Discount Rate 284. 7 3 2 Reassessment of the Discount Rate 284, Chapter 8 Lessee Accounting 285.
8 1 Overview 286, 8 1 1 Setting the Stage 286, 8 1 2 Navigating the Lessee Model 287. 8 2 Policy Decisions That Affect Lessee Accounting 288. 8 2 1 Short Term Lease Recognition Exemption 288, 8 2 2 Accounting for Leases at a Portfolio Level 292. 8 3 Lease Classification 292, 8 3 1 Relevance of Classification Determination 292. 8 3 2 Classification Date 293, 8 3 3 Lease Classification Criteria 293. 8 3 3 1 Overview of the Classification Criteria 294. 8 3 3 2 Decision Tree on Determining Classification 295. 8 3 3 3 Transfer of Ownership at the End of the Lease Term 296. 8 3 3 4 Purchase Option Reasonably Certain to Be Exercised 297. 8 3 3 5 Major Part of the Remaining Economic Life 298. 8 3 3 6 Substantially All of the Fair Value of the Underlying Asset 302. 8 3 3 7 Underlying Asset Is Specialized and Has No Alternative Use to the Lessor at the. End of the Lease Term 311, 8 3 4 Classification Reassessment Requirements 312.
8 3 5 Other Considerations Related to Lease Classification 313. 8 3 5 1 Lease of an Acquiree 313, 8 3 5 2 Related Party Leases 321. 8 3 5 3 Leases Involving Facilities Owned by a Governmental Unit or Authority 323. 8 3 5 4 Lessee Indemnification for Environmental Contamination 323. 8 4 Recognition and Measurement 324, 8 4 1 Lease Inception and Lease Commencement 324. 8 4 1 1 Lease Inception 324, 8 4 1 2 Lease Commencement Date 324. 8 4 2 Initial Recognition and Measurement of the Lease 326. 8 4 2 1 Initial Determination of the Lease Liability 326. 8 4 2 2 Initial Determination of the ROU Asset 327. 8 4 3 Subsequent Measurement 332, 8 4 3 1 Subsequent Measurement of a Finance Lease 333. 8 4 3 2 Subsequent Measurement of an Operating Lease 336. 8 4 3 3 Variable Payments Based on the Achievement of a Specified Target 342. 8 4 3 4 Accounting for Leases With a Nonconsecutive Period of Use 346. 8 4 4 Impairment of an ROU Asset 349, 8 5 Remeasurement of the Lease Liability 361.
8 5 1 Change in the Lease Term or in the Conclusion About the Exercise of a Purchase Option 365. 8 5 1 1 Timing of Reassessment Related to Lease Term and Purchase Option 365. 8 5 1 2 Accounting for the Reassessment of the Lease Term and Purchase Option 365. Deloitte A Roadmap to Applying the New Leasing Standard 2020. 8 5 2 Change in the Amount That It Is Probable That a Lessee Will Owe at the End of the. Lease Term Under a Residual Value Guarantee 366, 8 5 2 1 Continual Reassessment of Amount That It Is Probable a Lessee Will Owe. Airington Chris Chiriatti Brandon Coleman Amy Park Ryan Pringle Bob Uhl and Amy Winkler They would also like to acknowledge the members of our Production group for their contributions especially Joe Renouf the Roadmap s technical editor who has somehow made over 900 pages of accounting speak understandable Geri Driscoll and Jeanine Pagliaro who checked and double checked

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