Fix clause in ASC

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Aug 6th, 2022
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How to fix clause in ASC

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ASC 842, also known as Topic 842, is the new FASB lease accounting standard and dictates how organizations reporting under US GAAP should record the financial impact of their leases. Among other changes, the new standard requires organizations to record the majority of their leases on the balance sheet.
FASB ASC 842-10-15-29 indicates that, the guidance in FASB ASC 842-10-15-28 notwithstanding, to classify and account for a lease of land and other assets, an entity should account for the right to use land as a separate lease component unless the accounting effect of doing so would be indocHub (for example,
In these situations, to determine the lease term under FASB ASC 842, an entity must first determine if the lease is no longer enforceable if both the lessee and the lessor each have the right to terminate the lease without permission from the other party with no more than an indocHub Page 3 penalty.
An example of in-substance fixed payments would be a lease agreement which offers a choice between two distinct payment amounts for consideration with one being variable, based on an amount of sales and the other being a required minimum amount.
Even though there is no change to income taxes as a result of ASC 842 implementation, this is a good time to evaluate the tax treatment of leases to ensure that: 1) the company is on the correct tax accounting method for leases and 2) to determine if a more favorable tax treatment of the lease is available.
Lessees who report under US GAAP (ASC 842), follow a two-model approach for the classification of lessee leases as either finance or operating. For lessors, the classification categories for leases are sales-type, direct financing, or operating.
The 90% rule is one of the criteria used to classify leases as operating or finance. If the present value of future lease payment is substantially all, or 90% of the fair value of the leased asset, then the lease is not an operating lease.
Here are the most common factors that lead to remeasurement: Changes in Lease Payments: This could include an increase or decrease in lease payments due to an adjusted lease payment, resolution of a contingency that changes payments or variations in payments based on changes in an index or rate.

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