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New Developments Summary: New ASU amends Leases provisions

Qualifying lease and nonlease component combinations, optional transition method allowed

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The FASB recently issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which amends ASC 842, Leases, in two important areas.

First, the new ASU allows lessors to combine lease and associated nonlease components by class of underlying asset in contracts that meet certain criteria. For a lessor to qualify for this practical expedient, the lease and related nonlease components must have the same timing and pattern of transfer, and the lease component, if accounted for on a stand-alone basis, would be classified as an operating lease.

The guidance in ASU 2018-11 also provides entities with an optional method for adopting the new leasing guidance. The optional transition method allows entities to apply the new guidance at the adoption date by recognizing a cumulative-effect adjustment to the opening balance of the retained earnings, and not to restate the comparative periods presented.

For a complete discussion of these changes, download our latest New Developments Summary here.

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Ryan Brady
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Accounting Principles Group
T +1 312 602 8741