Leases

ASC 360-20 formerly contained the specialized U.S. GAAP for recognizing profit on sales of real estate (the old FASB Statement No. 66 model with full accrual, installment, cost recovery, deposit, and percentage-of-completion methods, plus sale-leaseback and continuing-involvement rules). Every paragraph in the subtopic has been superseded — mostly by ASU 2014-09 (Revenue from Contracts with Customers) and ASU 2016-02 (Leases). Sales of real estate are now accounted for under ASC 606 if the counterparty is a customer, or under ASC 610-20 for sales of nonfinancial assets to noncustomers, with sale-leaseback transactions governed by ASC 842-40.

ASC 440-10 is the general "Commitments" subtopic: it requires disclosure of certain contractual commitments (unused letters of credit, pledged assets, cumulative preferred dividends in arrears, plant acquisition commitments, obligations to reduce debt, maintain working capital, or restrict dividends) that are not otherwise more explicitly addressed elsewhere in the Codification. Its Unconditional Purchase Obligations Subsections require disclosure of off-balance-sheet take-or-pay and throughput contracts that are noncancelable, were negotiated as part of arranging financing for the supplier's facility, and have a remaining term over one year. The Topic is largely a disclosure standard—recognition of such obligations is governed by other Topics (842, 815, 330).

ASC 605-30 was the legacy revenue recognition guidance for "Rights to Use" arrangements (transfers of rights to use property rather than sales of the property itself). Its substantive paragraphs — 605-30-05-1 (overview) and 605-30-25-1 (recognition) — were superseded by ASU 2014-09, so the subtopic is now an empty shell. Arrangements formerly analyzed here are accounted for under ASC 606 (or ASC 842 if the arrangement conveys a lease).

ASC 840-10 was the "Overall" subtopic of the legacy U.S. GAAP lease model, containing the scope, lease classification criteria (capital vs. operating), lease term and minimum lease payment definitions, and related implementation guidance for both lessees and lessors. Every substantive paragraph in this subtopic has been superseded by Accounting Standards Update No. 2016-02 (and one paragraph, 840-10-60-3, by ASU 2014-09), which replaced Topic 840 with Topic 842. As currently codified, 840-10 contains no operative guidance.

ASC 840-20 formerly contained the legacy accounting for operating leases by lessees and lessors, but every paragraph in the subtopic has been superseded and it now carries no operative guidance. The bulk of the supersessions were made by ASU 2016-02, which replaced Topic 840 with Topic 842, while two derecognition paragraphs (840-20-40-3 and 840-20-40-4) were superseded by ASU 2014-09 on revenue. Readers seeking current operating lease rules must consult Topic 842.

ASC 840-30 was the legacy guidance governing lessee accounting for capital leases and lessor accounting for direct financing and sales-type leases (recognition, initial measurement of the leased asset and obligation at the present value of minimum lease payments, subsequent interest and amortization, terminations/renewals, presentation, and disclosure). Every paragraph in this subtopic has been superseded — almost entirely by ASU 2016-02 (Leases, which created ASC 842), with 840-30-25-5 superseded by ASU 2014-09 (Revenue). As a result, 840-30 contains no operative guidance for entities that have adopted ASC 842.

ASC 840-40 was the legacy sale-leaseback guidance under the old lease model, addressing when a seller-lessee could recognize a sale of property it simultaneously leased back and how any gain or loss was deferred and amortized. Every substantive paragraph in the subtopic (Sections 05, 15, 25, 30, 35, 50, and 55) has been superseded by ASU 2016-02, so the subtopic now contains no operative guidance. Sale-leaseback transactions are instead accounted for under ASC 842-40, which conditions sale recognition on satisfying the transfer-of-control requirements in ASC 606.

ASC 840-958 was the not-for-profit-specific guidance within the legacy leases topic (ASC 840), addressing how NFP entities applied lease accounting. Every remaining paragraph in this subtopic (05-1, 15-1, and 55-1 through 55-4) has been superseded by Accounting Standards Update No. 2016-02, so the subtopic contains no operative guidance. NFP lessees and lessors now follow ASC 842, including its NFP-specific provisions.

This subtopic previously provided lease guidance specific to real estate investment trusts (REITs) within the legacy leases topic (ASC 840). All of its content — the overview (05-1), scope (15-1), and recognition (25-1) paragraphs — was superseded by ASU 2016-02, which replaced ASC 840 with ASC 842. There is accordingly no substantive guidance remaining here.

ASC 840-978 was the intersection subtopic applying the old lease accounting model (Topic 840) to real estate time-sharing activities (Topic 978). Every paragraph in its Overview, Scope, and Recognition sections has been superseded by ASU 2016-02, the standard that replaced Topic 840 with Topic 842. As a result, the subtopic contains no remaining substantive guidance.

This subtopic formerly provided lease guidance specific to regulated operations (rate-regulated utilities) under the old lease model in ASC 840 — for example, how capital lease accounting interacted with regulator-prescribed rate-making treatment. Every paragraph in every section (05, 15, 25, 35, 45, 55) has been superseded by ASU 2016-02 (Leases (Topic 842)), so the subtopic contains no operative guidance. Lessees and lessors in regulated operations now apply ASC 842, together with the regulated-operations guidance in ASC 980 (including ASC 842-10 and 980-340/980-405 concepts on regulatory assets and liabilities).

ASC 842-10 sets the scope and core mechanics common to all leases: how to decide whether a contract is or contains a lease, how to identify and separate lease and nonlease components and allocate consideration, how to classify the lease (finance/sales-type, direct financing, or operating), and how to determine lease term and lease payments. A contract contains a lease if it conveys the right to control the use of an identified item of property, plant, or equipment for a period of time in exchange for consideration — meaning the customer has both the right to obtain substantially all the economic benefits from use and the right to direct the use of that asset (842-10-15-3, 15-4). Classification is made once at the commencement date and is reassessed only on a modification not accounted for as a separate contract (or, for lessees, a change in lease term or purchase option assessment) (842-10-25-1).

ASC 842-20 governs how a lessee accounts for leases already classified as finance or operating leases under 842-10. At commencement the lessee recognizes a right-of-use asset and lease liability measured at the present value of unpaid lease payments (842-20-25-1; 30-1); thereafter finance leases produce separate amortization and interest (842-20-25-5), while operating leases produce a single straight-line lease cost (842-20-25-6). It also covers short-term lease policy elections, remeasurement, ROU asset impairment, leasehold improvements, subleases, terminations, and extensive presentation and disclosure requirements.

ASC 842-30 governs how lessors account for leases already classified under 842-10 as sales-type, direct financing, or operating leases. For sales-type and direct financing leases the lessor derecognizes the underlying asset and recognizes a net investment in the lease (lease receivable plus unguaranteed residual asset, discounted at the rate implicit in the lease), with selling profit recognized immediately in a sales-type lease but deferred into the net investment in a direct financing lease; interest income then accretes at a constant periodic rate. For operating leases the lessor keeps the asset on its books and recognizes lease payments as income straight-line (or another systematic and rational basis) over the lease term, and a collectibility-not-probable assessment overrides normal recognition in all three models.

ASC 842-40 governs sale and leaseback transactions, in which a seller-lessee transfers an asset to a buyer-lessor and leases it back. The threshold question is whether the transfer qualifies as a sale under Topic 606's control-transfer guidance; if it does, the seller-lessee derecognizes the asset, recognizes the sale at the transaction price, and accounts for the leaseback under 842-20, while the buyer-lessor accounts for the purchase under other Topics and the lease under 842-30. If the transfer is not a sale (e.g., the leaseback is a finance/sales-type lease or there is a non-fair-value repurchase option), the transaction is a failed sale accounted for as a financing by both parties.

ASC 842-50 preserves the legacy leveraged lease accounting model, but only for leases that existed at the ASC 842 transition date and meet the criteria in 842-10-65-1(z) — no new leveraged leases may be created. A lessor records a single net investment consisting of rentals receivable (net of nonrecourse debt service), investment-tax-credit receivable, estimated residual value, and unearned/deferred income (842-50-25-1; 842-50-30-1), and recognizes income only in years when the net investment (less related deferred taxes) is positive, using the rate of return that distributes total net income to those years (842-50-35-2). Important assumptions, including residual value and the projected timing of income tax cash flows, must be reviewed at least annually, with any change triggering recalculation from lease inception and immediate gain or loss recognition (842-50-35-6 through 35-8).

This narrow subtopic tells a real estate investment trust (REIT) how much it may capitalize when a related service corporation performs leasing services for it. The service corporation is never treated as an independent third party, no matter how the REIT accounts for its investment in it (equity method, consolidation, etc.). Capitalized amounts are capped at the initial direct costs the REIT could have capitalized under 842-10-30-9 through 30-10 had it incurred the leasing costs directly.

This Subtopic addresses how rate-regulated entities account for leases when the regulator's rate-making treatment differs from Topic 842. Lease classification for financial reporting follows Topic 842 regardless of how the regulator treats the lease, but the timing of expense (or income) recognition is modified to conform to the rate treatment, with timing differences capitalized or accrued as regulatory assets or liabilities. Sale-and-leaseback timing differences are handled either as part of a phase-in plan under Subtopic 980-340 or by conforming recognition to the Regulated Operations Topic.

ASC 853-10 governs how an operating entity accounts for a service concession arrangement — a contract in which a public-sector grantor engages the operating entity to operate (and possibly construct, upgrade, or maintain) the grantor's infrastructure, such as airports, roads, bridges, prisons, or hospitals. The arrangement is in scope only if the grantor controls or can modify/approve the services, the recipients, and the price, and controls any residual interest in the infrastructure at the end of the term (853-10-15-3). In scope, the grantor is always deemed the customer of the operation services under Topic 606, the infrastructure is not recognized as the operating entity's PP&E, and the arrangement is not a lease under Topic 842 (853-10-25-1 through 25-2).