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

The amendments in this Update require lessors to 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 day-one loss.

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.

This Accounting Standards Update is the final version of a portion of Proposed Accounting Standards Update 2020-700—Leases (Topic 842): Targeted Improvements.