Real Property / Leases / Lease Portfolio / Extension for Lease Accounting

To Enter a Transition Lease (FASB ASC 840 and 842)

Requirement

A transition lease is one with a start date before the Effective Date (typically 2019-01-01 for a public company) but with an End Date after that Effective Date. The FASB guidance directs lease managers to:

• account for lease periods before the Effective Date under ASC 840
• account for the lease periods after the Effective Date under ASC 842
• make certain provisions for transition accounting.

The differences between entering a transition ASC 842 Lease and a non-transition lease are:

• The Lease Administrator accepts a different default for Commencement Date (as described below).
• The Lease Administrator selects the Previous Lease Classification (as described below).

The program calculates both the ASC 840 and the ASC 842 schedules in order to provide transition accounting information.

Note: On March 7, 2018, the FASB approved changes to the comparative reporting transition guidance. As part of these changes, organizations are no longer required to apply the new standard (including disclosure requirements) to comparative periods presented. Those periods can continue to be presented in accordance with current generally accepted accounting principles. To use this alternative accounting method, set your FASB842_DateOfInitialApplication preference to be the same as your FASB842_EffectiveDate, typically 2019-01-01 for public companies and 2020-01-01 for private companies.

Procedure

Prerequisite: Set up Default Transition Dates and Preferences.

1. In the Real Property / Leases / Lease Portfolio / Lease Portfolio Console, enter this data:

FASB/IASB Lease Type	Choose Land Only, Partial-Building, Building and Land, or Equipment.
Start Date	Enter the full legacy Lease Start Date and End Dates
Costs	Enter Costs per the ASC 840 guidelines, with gross lease costs (e.g. taxes, maintenance, insurance, etc.) broken out as separate Cost Categories from Base Rent, but assigned to the lease.
Options.	Enter your options as described in Entering your Leases and Lease Options with the Lease Portfolio Console.

2. In the Real Property / Leases / Lease Portfolio / Lease Classification Wizard, enter this data:

Commencement Date	If the Lease Start Date is prior to the Date of Initial Application, this value will default to the Date of Initial Application (e.g. 2017-01-01 for a public company). Accept this default.
Previous Lease Classification	If your Commencement Date is after your Lease Start Date, the program will enable this field. Change it from N/A to one of these selections: FASB 840 – Operating Lease FASB 840 – Capital Lease

Outcome

The program calculates:

• a legacy ASC 840 schedule for the entire lease term, from Lease Start Date to the FASB / IASB End Date. This schedule will use the ASC 840 rules for calculating costs.
• an ASC 842 schedule from the Commencement Date to the FASB / IASB End Date. This schedule will use the ASC 842 rules for calculating costs.

The program uses portions of the legacy ASC 840 schedule for calculating ASC 842 lease accounting . Only the Unamortized Initial Direct Costs and the Accrued Rent Liability from the ASC 840 schedule affect the ASC 842 schedule. The Gain or Loss is calculated for export to the subledger.