Post on 31-Mar-2020
1
KPMG’s CFO Financial ForumFinancial Forum WebcastA Detailed Look at the FASB/IASB Revised Leases Exposure Drafts – Part I (Scope, Definition, and Lease Classification)
June 13, 2013
Administrative
CPE regulations require online participants to take part in online questions
You must respond to a minimum of 4 questions in order to be eligible for CPE credit
Polling questions will appear on your media player on top of the slides
Send Questions via ‘Ask a Question’ Button
Help Desk: 1-877-398-1471 or outside the U.S. at +1-954-969-3342
You can print out presentation slides from the ‘Supporting Material’ icon
Reference materials are available:
2© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
Slides
Defining Issues
Issues In-Depth
2
Agenda
Scope
Definition of a lease
Agreements with lease and non-lease components
Agreements with multiple leased assets
Lease classification
Question & answer session
3© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
Polling Question #1
Is the organization you represent primarily a lessee, a lessor, or both?
A. Lessee
B. Lessor
C. Both
4© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
3
Scope
Within scope Scope with exceptions Outside scope
L f t L f Leases with service components
Short-term leases (≤ 12 months with no purchase option)
Leases of assets
Long leases of land
Sale-leasebacks
Subleases
In-substance purchases / sales
Leases of inventory
Leases of:
Intangibles (other than ROU assets)
Natural resources and exploration
Biological assets
5© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
FASB/IASB LEASES PROJECT
Short-Term Leases
A lease contract that does not include a purchase option at any exercise price and for which the longest possible term is ≤ 12 months
Lessee Policy election by class of underlying assets to not recognize lease
assets or lease liabilities
Recognize lease payments in P&L over term on a straight-line basis
Lessor
Policy election by class of underlying assets to not recognize lease receivables and residual assets
Continue to recognize the leased asset
Recognize lease payments in P&L over lease term (generally straight-line)
6© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
line)
Leases cancelable by both lessee and lessor
Leases in which the lessee and the lessor each have a right to cancel the lease at any point in the future without a significant penalty (i.e., with only a nominal charge) would meet the definition of short-term leases when the notice period, together with any initial non-cancellable period, is less than one year.
4
Polling Question #2
Which of the following would qualify as a short-term lease?
A. A lease of equipment for 1 month that automatically renews until canceled by the lessee
B. A lease of equipment for 12 months that includes no options to renew the lease and no purchase option
C. A lease of equipment for 10 months, without any renewal options, that includes an option for the lessee to purchase the equipment at fair market value at the end of the lease term
D. A lease of equipment for 15 months that can be terminated after 1 month without penalty
7© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
Polling Question #2 – Answer
The correct answer is B.
The lease in option B has a maximum possible term of 12 months or less. Options A and D have a maximum possible term of > 12 months The lease inOptions A and D have a maximum possible term of > 12 months. The lease in option C contains a lessee purchase option so would not qualify as a short-term lease regardless of the maximum possible lease term or the likelihood that the purchase option would be exercised.
8© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
5
Lease Definition
A contract that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration.
Definition focuses on control of an identified asset.
Supplier cannot substitute an asset
Asset must be physically distinct – applies to distinct portions but not generic capacity
Use of identified
asset
9© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
Ability to make decisions that most significantly affect economic benefits derived from use
Ability to derive substantially all of the potential economic benefits throughout contract term
Right to control use
FASB/IASB LEASES PROJECT
Example #1: Lease Definition – Determining if There Is an Identified Asset
Example:
Mocha Liquid enters into an arrangement for a storage service that involves the use of a refrigerator for coffee beans.
The supplier has the right to substitute the refrigerator without Mocha Liquid’s The supplier has the right to substitute the refrigerator without Mocha Liquid s consent.
The supplier has many identical refrigerators that are maintained in a single, accessible location and the supplier could easily substitute another unit for the refrigerator in the contract at a nominal cost.
Would this contract contain an identified asset under the revised lease accounting Exposure Drafts?
10© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
6
Example #1: Lease Definition – Determining if There Is an Identified Asset (continued)
Solution:
Fulfillment of the contract would not be considered dependent on an identified asset because the substitution right is substantive (i.e., the supplier has the right to substitute the refrigerator without Mocha’s consent and there are no economic gor other barriers to the supplier exercising its substitution right). Therefore, this contract is not (or does not contain) a lease.
11© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
Polling Question #3
Following on from the previous example, would the contract depend on an identified asset if the refrigerator is significantly customized and located in an isolated area?
A. Yes
B. No
12© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
7
Polling Question #3 – Answer
The correct answer is yes.
The substitution right would not be substantive if the cost of similarly customizing and/or delivering an alternative unit would create an economic or operational barrierand/or delivering an alternative unit would create an economic or operational barrier to substitution. Therefore, fulfillment of the contract would depend on an identified asset.
13© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
Example #2: Lease Definition – Controlling the Use of an Identified Asset
Example:
Customer enters into a time charter contract with Shipowner for transportation of cargo on a named ship for a period of 5 years. Customer determines the cargo to be transported, and the timing and location of delivery.
Customer pays a daily hire rate for the use of the ship and navigation and cargo management services (including the use of the ship’s captain, crew, and equipment). Customer does not pay for hire when the ship is off-hire (i.e., unavailable for use due to maintenance or repairs). Customer can decide when the ship is off-hire if the specified conditions for doing so under the time charter are met.
Shipowner pays for the costs of the ship when it is off-hire and remains responsible for the navigation and condition of the ship. Shipowner is also responsible for maintenance and overhaul, cleaning services relating to the cargo space, regulatory
li tt f hi f t d f th h it i b d it hi
14© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
compliance on matters of ship safety, and for the cargo when it is onboard its ship. Shipowner pays for all operating expenses of the ship, while Customer pays for the fuel used by the ship (except when the ship is off-hire) and for the port costs.
Would this contract meet the definition of a lease in the revised lease accounting Exposure Drafts?
8
Example #2: Lease Definition – Controlling the Use of an Identified Asset (continued)
Solution:
The contract contains a lease based on the following:
The contract’s fulfillment depends on an identified asset (i.e., the named ship)
C t t l th f th hi Customer controls the use of the ship:
- Customer directs the use of the ship because it determines when it is on or off-hire, and the ship’s crew is under Customer’s control when on-hire, meaning Customer can determine when and where the ship carries cargo; and
- Customer has the right to obtain substantially all of the potential economic benefits from use of the ship during the contract term because no other party can utilize the ship during the contract term (e.g., Shipowner cannot use the ship to transport another customer’s cargo when Customer is not using the ship or when it is off-hire).
15© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
Polling Question #4
Following on from the previous example, would the contract meet the definition of a lease if Shipowner could use the ship to transport another customer’s cargo when Customer is not using the ship or when it is off-hire?
A. Yes
B. No
C. It depends
16© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
9
Polling Question #4 – Answer
The correct answer is C – it depends.
If the proportion of the arrangement term that Customer is not using the ship is expected to be insignificant it is likely that the contract would meet the definition ofexpected to be insignificant, it is likely that the contract would meet the definition of a lease. Otherwise, if there are significant economic benefits that would accrue to shipowner from operating the ship when Customer is not using it, the contract may not meet the definition of a lease because Customer does not control the use of the ship throughout the contract term.
17© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
Agreements with Lease and Non-Lease Components
Lessee Lessor
When there is an observablef
Separate and allocate Always separate and standalone price for each component
based on relative standalone price of components
allocate using the revenue recognition standard’s guidance (i.e., on a relative selling price basis) When there is an observable
standalone price for one or more, but not all, components
Separate and allocate using the residual method
When there is not an observablet d l i f f th
All lease
18© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
standalone price for any of the components in the arrangement
Assets incidental to the delivery of specified services
All service
FASB/IASB LEASES PROJECT
10
Example #3: Separation and Allocation of Contract Consideration to Lease and Non-Lease Components
Example:
Lessor leases a specialized machine for two years, and provides consulting services to help Lessee effectively use the machine in its production processes.
The machine is not sold or leased separately by Lessor and there are no similar The machine is not sold or leased separately by Lessor and there are no similar machines for sale or lease from other suppliers. Lessor estimates the standalone price to lease the machine would be $160,000.
Similar consulting services are sold on a standalone basis for $40,000 by alternate service providers.
The contract is for fixed consideration of $100,000 for the first year and $80,000 for the second year. The lower second-year price is based on the assumption that Lessor will provide more consulting services in the first year.
19© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
How would Lessor and Lessee each separate and allocate consideration to lease and non-lease components of this contract (i.e., the machine and the consulting services, respectively)?
Example #3: Separation and Allocation of Contract Consideration to Lease and Non-Lease Components (continued)
Solution:
Lessor is required to separate the lease component from the non-lease component.
Lessee will separate the lease component from the non-lease component Lessee will separate the lease component from the non-lease component because there is an observable standalone price for one of the two components.
Component
Stand-alone Price
AllocatedConsideration
Lessor Lessee
Machine lease $160,000 E $144,000 $140,000
C lti i 40 000 O 36 000 40 000
20© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
Consulting services 40,000 O 36,000 40,000
Totals $200,000 $180,000 $180,000
E – Estimated standalone price.O – Observable standalone price.
11
Polling Question #5
Which party to a lease contract must separate lease from non-lease components in all circumstances?
A LesseeA. Lessee
B. Lessor
C. Neither party
21© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
Polling Question #5 – Answer
The correct answer is B – the lessor.
The Boards’ proposals presume that a lessor should always be able to separate payments made for lease and non lease components because it would need topayments made for lease and non-lease components because it would need to have information about the value of each component to price the contract. In addition, the Boards decided that application of the forthcoming revenue recognition guidance would ensure consistency for entities that are both a lessor and a seller of goods or services within the same contract.
22© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
12
Agreements with Multiple Leased Assets – Identifying Separate Lease Components
Lessor Lessee
A leased asset is a separate lease component if it is distinct, which requires
A leased asset is a separate leasecomponent if:component if it is distinct, which requires
that both:
The lessee can benefit from use of the asset either on its own or together with other readily available resources; and
The leased asset is not highly dependent on or highly interrelated with other underlying assets in the contract
component if:
It is distinct (same criteria as for lessors); and
There are observable standalone prices1
for the leased asset or for all of the other leased assets in the contract2
23© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
1Observable standalone prices are those charged by the lessor or a similar supplier for a good or service or a similar good or service when sold separately.
2A leased asset for which the lessee does not have an observable standalone price would be combined with any other lease and/or non-lease elements for which the lessee does not have an observable standalone price.
Example #4: Identifying Separate Lease Components
Example:
Lessor leases three items of heavy machinery (a bulldozer, a truck, and an excavator) to Lessee to be used in Lessee’s mining operations.
Lessee can benefit from each of the three machines on its own or together with Lessee can benefit from each of the three machines on its own or together with other readily available resources (e.g., Lessee could readily lease or purchase an alternative truck and/or excavator to use alongside the bulldozer).
Despite the fact that Lessee is leasing all three machines for one purpose (i.e., to engage in mining operations), the machines are not highly dependent upon, or highly interrelated with, each other because the machines are not inputs to a combined single item for which Lessee is contracting, and none of the machines is significantly modifying or customizing another.
24© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
How would Lessor and Lessee each determine the separate lease components in this contract?
13
Example #4: Identifying Separate Lease Components (continued)
Lessor Solution:
Lessor concludes that the lease of each underlying machine is a separate component for accounting purposes (i.e., there are three lease components).
Lessee Solution:
Lessee will reach the same conclusion as Lessor as long as there are observable standalone prices for at least two of the three equipment leases; otherwise it will have to combine those lease elements for which standalone prices are not observable.
25© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
Example #5: Identifying Separate Lease Components
Example:
Lessor leases a gas-fired turbine plant to Lessee so that it can produce electricity for its customers.
The plant includes the turbine a building that exists only to house the turbine and The plant includes the turbine, a building that exists only to house the turbine, and the land on which the building is located. The building has been designed for use only with the turbine, has a similar useful life, and has no alternative use.
How would Lessor and Lessee each determine the separate lease components in this contract?
26© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
14
Example #5: Identifying Separate Lease Components (continued)
Solution:
The lease of the turbine, building, and land would be treated as a single lease component for accounting purposes by both Lessor and Lessee based on the following evaluation, indicating that the underlying assets are not “distinct”:g , g y g
- Lessee can benefit from the turbine on its own (evidenced by fact that manufacturer sells turbines separately) or together with other readily available resources because the turbine could be housed in a different building on other land.
- Lessee benefits from the land and building together as a single unit (i.e., an entity cannot benefit from the building without the land on which it is located).
- However, the turbine, the building, and the land are highly interrelated because the turbine, building, and land are each inputs to the customized combined item for which Lessee has contracted (i.e., a gas-fired turbine plant that can produce
27© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
( , g p pelectricity for distribution to Lessee’s customers).
Lease Classification Tests*
Is the underlying asset property(land and / or a
building)?No Yes
Lease term for a major part of the remaining economic life; or
building)?
Type A lease** Type B lease**
Unless Unless
Lease term for an insignificant part of the total economic life; or
28© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
PV of the lease payments amounts to substantially all FV of underlying asset
PV of the lease payments insignificant compared to FV of underlying asset
* Lease classification would be performed only at lease commencement or upon lease modification.** If the lease includes a purchase option that the lessee has a significant economic incentive to exercise, it would always be classified as a Type A lease.
FASB/IASB LEASES PROJECT
15
Classification of Leases with Multiple Underlying Assets
Primary asset
Applicable lease term test based on life of primary asset− Primary asset – predominant asset for which the lessee
Property vs
entered into the contract− Non-primary assets – enable lessee to obtain benefits of
the primary asset
Land and building = single item
No allocation of payments between land and building
vs Non-property
L d d
29© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
p y g Economic life of building = economic life of property for
lease term test In some cases may result in lease income/ expense
recognized on an accelerated basis
Land and building
FASB/IASB LEASES PROJECT
Example #6: Lease Classification – Property+
Example:
Lessor and Lessee enter into a 15-year lease of a storage warehouse, which has a remaining economic life of 40 years at the lease commencement date.
The present value of the lease payments is $300 000 The present value of the lease payments is $300,000.
The fair value of the property at the lease commencement date is $400,000.
How would Lessor and Lessee classify this lease (i.e., Type A or Type B)?
30© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
+ Based on Example 12 in proposed FASB ASC Subtopic 842-10 of the 2013 FASB ED and Example 13 of the 2013 IASB ED.
16
Example #6: Lease Classification – Property (continued)
Solution:
The lease would be classified as a Type B lease because the underlying asset is property and:
The lease term of 15 years is for less than a major part (37 5%) of the remaining The lease term of 15 years is for less than a major part (37.5%) of the remaining economic life of the property, and
The present value of the lease payments represents less than substantially all (75.0%) of the fair value of the property at the lease commencement date.
The Boards have not defined “major part of the economic life” or “substantially all” for purposes of evaluating lease classification. Therefore, how much higher the
31© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
p p g , gthresholds for major part and substantially all would be than the benchmarks illustrated in the Boards’ example is likely to be the subject of future interpretive debate.
Example #7: Classification of a Lease with Multiple Underlying Assets
Fact pattern for example:
Lease of laboratory (integral) equipment, laboratory building, and underlying land
Underlying assets comprise a single lease component
Laboratory equipment is primary underlying asset
Lease term 5 years
Total economic life of laboratory equipment 10 years
Remaining economic life of building 25 years
Present value of minimum lease payments $ 375,000
Fair value of underlying assets in aggregate $1,000,000
No rene al or p rchase option / title transfer in lease agreement
32© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
No renewal or purchase option / title transfer in lease agreement
ED’s Proposals – Type A Lease
Lessee: Accelerated ROU Model
Lessor: R&R Model
ASC 840
Lessee: Operating lease
Lessor: Operating lease
FASB/IASB LEASES PROJECT
17
Polling Question #6
What is the appropriate basis upon which to determine which asset in a single lease component with multiple underlying assets is the “primary asset”?
A The asset with the highest lease commencement date fair value is always the primaryA. The asset with the highest lease commencement date fair value is always the primary asset
B. The asset with the longest remaining economic life is always the primary asset
C. The asset with the longest total economic life is always the primary asset
D. The predominant asset for which the lessee entered into the lease contract is always the primary asset
33© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
Polling Question #6 – Answer
The correct answer is D.
The 2013 EDs propose that the primary asset in a lease component that contains multiple underlying assets would be the predominant asset for which the lesseemultiple underlying assets would be the predominant asset for which the lessee entered into the lease contract.
34© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
18
Question & Answer Session
Presenters’ contact details
Kimber K. Bascom212-909-5664kbascom@kpmg.com
Scott A. Muir212-909-5073smuir@kpmg.com
36© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name,logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A.
19
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
© 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 26120NSS
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.