Leases (Topic 842)—Lessors—Leases with Variable Lease
Payments

Accounting Standards Update 2021-05—Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments

 

Overview


On July 19, 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2021-05, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments.

The amendments in this Update require that lessors classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met:
  1. The lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in paragraphs 842-10-25-2 through 25-3.
  2. The lessor would have otherwise recognized a selling loss at lease commencement.
The amendments in this Update affect lessors with lease contracts that (1) have variable lease payments that do not depend on a reference index or a rate and (2) would have resulted in the recognition of a selling loss at lease commencement if classified as sales-type or direct financing.
 

Transition and Effective Dates


The amendments in this Update are effective for fiscal years beginning after December 15, 2021, for all entities, and interim periods within those fiscal years for public business entities and interim periods within fiscal years beginning after December 15, 2022, for all other entities.

Entities that have not adopted Topic 842 on or before the issuance date of this Update should follow the transition requirements of Topic 842 in paragraph 842-10-65-1 for the amendments in this Update. Entities that have adopted Topic 842 before the issuance date of this Update have the option to apply the amendments in this Update either (1) retrospectively to leases that commenced or were modified on or after the adoption of Topic 842 or (2) prospectively to leases that commence or are modified on or after the date that an entity first applies the amendments. Earlier application is permitted.
 

Additional Information

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