FASB Amends Lessor Classification Guidance to Prevent Selling Losses on Leases with Variable Payments

The FASB amended ASC 842 to require lessors to classify leases as operating leases if they have variable lease payments that do not depend on an index or rate and would have selling losses if they were classified as sales-type or direct financing leases. Lessors that have adopted ASC 842 as of 19 July 2021, the date the amendments were issued, can apply the amendments either retrospectively to leases that commenced or were modified on or after the date of adoption of ASC 842 or prospectively to leases that commence or are modified on or after the date the amendments are first applied. Lessors that have not adopted ASC 842 as of 19 July 2021 are required to apply the amendments when they adopt ASC 842 and follow the transition requirements in ASC 842.

(Source: EY Accounting Link – US Week in Review – August 5, 2021)