asc 842 impairment

December 25, 2020 - Less than a minute read

. This publication complements our Financial reporting developments (FRD) publications, Lease accounting (ASC 842), Impairment or disposal of long-lived assets . Basically, a payment of key money in this context should become a part of the right of use (ROU) asset, which will then be amortized over the term of the lease. For example, Microsoft Corporation is an early adopter. Long-lived assets to be held and used (including property, plant, and equipment; finite-lived intangible assets; and right-of-use assets recognized under FASB ASC 842, Leases) are ASC 842’s changes about recording leases as an asset and a liability are also applicable on right-of-use assets (ROU assets), and will therefore be subject to the same impairment standards as set for other assets under ASC 360 (Property, Plant, and Equipment). The entities whose operations are negatively affected by COVID-19 may need to consider testing their assets for impairment. Under ASC 842, and with a potential recovery from the current price drop many quarters out, leased assets could be affected in upstream, midstream, and downstream segments. Please refer to the article Early Adoption of ASC 842 for more information on the effects of transitioning to ASC 842. Key money and ASC 842. ROU assets recognized as a result of the application of ASC 842 are subject to the long-lived asset impairment testing guidance prescribed by ASC 360, Property, Plant, and Equipment. This article follows our recent Hot Topics on accounting for rent concessions resulting from the COVID-19 outbreak. Lease accounting under ASC 842: practice issues and implementation We will be starting soon Tuesday, May 15, 2018 1:00 - 2:30 pm ET Please disable pop-up blocking software before The economic and financial markets effects of the COVID-19 outbreak may have a number of impacts on companies’ lease accounting under ASC 842. ASC 842 addresses this type of payment in the excerpts shown below. The original lease is referred to as the head lease and the new lease with the third party is the sublease. Companies will likely immediately trigger impairment of assets of which the economic value may be significantly reduced by negative market conditions. The original lessee becomes the sublessor and records … Lessees and lessors impacted by the COVID-19 outbreak. 02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. Method 1: Impairment Recognized Only at the Individual Lease Level — “[A] lessor would apply a strict interpretation of [ASC] 842-30-25-12 [and] 25-13 and account for the impairment of operating leases solely at the individual lease level. Applicability. and Once it’s determined that a ROU asset should be impaired, a new lease expense (in the case of an operating lease) should be calculated as the sum of the amortization of the remaining ROU asset balance (generally calculated on a straight-line basis) and the accretion of the lease liability (ASC 842-20-25-7). A sublease is defined by both ASC 840 and ASC 842 as a transaction in which an underlying asset is re-leased by the original lessee to a third party, and the lease agreement between the two original parties remains in effect. These Accounting Standards Updates (ASUs) include practical expedients that have been created to simplify ASC 842 transition requirements.. As we mentioned in our blog on lease data … Application in Practice. ASC 2842, the long-lived asset impairment guidance in ASC 360-10, and the exit or disposal cost 3guidance in ASC 420 for any non-lease components that are accounted for separately. 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