Summary of Statement No. 23

Inception of the Lease—an amendment of FASB Statement No. 13 (Issued 8/78)

Summary

Under FASB Statement No. 13, "Accounting for Leases," the inception of the lease is the date on which the classification of a lease is determined. The lease is recorded at the beginning of the lease term using the classification that was determined at the date of the inception of the lease. If property covered by a lease is yet to be constructed or has not yet been acquired by the lessor at the date of the lease agreement or any earlier commitment, this Statement:

Changes the "inception of the lease" from the date that construction is completed or the property is acquired by the lessor to the date of the lease agreement or any earlier commitment. This change is intended to result in a lease classification that more closely reflects the substance of the transaction.

Changes the lessee's determination of "fair value of the leased property" for a lease with a cost-based or similar escalator provision from the amount estimated on the inception date to an amount that is escalated to give effect to increases under the escalator clause, when:

  1. Fair value is used as a limitation on the amount of the asset to be recorded, or
  2. Fair value is used as a basis for allocation of recorded amounts between land and buildings.

This change is intended to base the lessee's accounting on amounts that relate to the finally determined lease payments.

If the redefined "inception of the lease" is a date before the beginning of the lease term, with limited exceptions this Statement prohibits the recording of increases in estimated residual value that may occur between those two dates.