The document discusses the changes to lease accounting standards under ASC 842. Key points include: - Lessees will recognize a right-of-use asset and lease liability for virtually all leases on their balance sheets. - The liability will be equal to the present value of lease payments, while the asset will be based on the liability. - Leases will continue to be classified as either operating or finance leases for income statement purposes. - Implementation of the new standard will require lessees and lessors to reassess lease classifications and accounting, with no leases being grandfathered in. It will increase complexity and require more estimates and judgments.

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cloud@FusionObjects.com Fusion Objects Corporation
Lease Accounting
Changes
ASC 842, Leases:
Overhaul of FAS13 Lease
Accounting

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cloud@FusionObjects.com Fusion Objects Corporation
Lease Accounting Changes
• ASC 842, Leases. Calendar year-end public business entities will need to
adopt the new leases standard on January 1, 2019.
• Lessee accounting model Lessees will need to recognize a right-of-use
asset and a lease liability for virtually all of their leases (other than leases
that meet the definition of a short-term lease).
• The liability will be equal to the present value of lease payments. The asset
will be based on the liability, subject to adjustment, such as for initial direct
costs.
• For income statement purposes, the FASB retained a dual model, requiring
leases to be classified as either operating or finance.
• Operating leases will result in straight-line expense (similar to current
operating leases) while finance leases will result in a front-loaded expense
pattern (similar to current capital leases).
• All leases will be included on the balance sheet for lessees

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cloud@FusionObjects.com Fusion Objects Corporation
Operational & System Impact
• What will change?
 How lessees and lessors should classify and account for leases
 When a lessee or lessor should reassess its lease classification
 How lessees and lessors should account for modifications to a lease
• Likely that the accounting for existing leases will have to be revised upon
transition.
• No leases will be grandfathered. Existing leases will likely require
abstracting of lease details.
• Complexity of lease calculations will increase as more variables will have to
be considered.
• Data will require aggregation from various sources not currently
considered.
• More estimates and judgments will be required which will entail tighter
auditing and tracking.
• There will be an ongoing need to review, reassess and possibly revise
initial estimates.

4. 4
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ASC Topic 842

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cloud@FusionObjects.com Fusion Objects Corporation
LESSEE ACCOUNTING : RIGHT-OF-USE
MODEL
• A lease conveys the right to use an asset for a period of time in
exchange for cash payments
• Lessee reports lease assets and liabilities on balance sheet,
except for short-term and for low-value asset leases, at present
value of future lease payments
• Discount rate: the rate implicit in the lease, or, if rate implicit not
available, lessee’s incremental borrowing rate
• Exclude variable payments and most optional payments
• Portfolio application, simplified reassessment
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cloud@FusionObjects.com Fusion Objects Corporation
LESSEE ACCOUNTING
BALANCE SHEET: WHAT’S INCLUDED?
• Increase in lease assets and financial liabilities—all leases
reported on balance sheet (other than short-term leases and
leases of low-value assets)
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Included in lease liabilities:
• Fixed payments (including
inflation-linked payments)
• Optional payments if lessee is
reasonably certain to extend
beyond non-cancellable period
• Expected amount of residual
value guarantees
Discounted
Fixed payments
(including
inflation-linked
payments)
Residual value
guarantee
Optional
payments
(reasonably
certain)

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cloud@FusionObjects.com Fusion Objects Corporation
LESSEE ACCOUNTING
BALANCE SHEET: WHAT’S EXCLUDED?
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Short-term
leases
Leases of low-
value assets
Variable lease
payments linked
to sales or use
Optional
payments (not
reasonably certain)
Not required to be included in lease
liabilities
Excluded from lease liabilities

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cloud@FusionObjects.com Fusion Objects Corporation
LESSEE ACCOUNTING
SUBSEQUENT MEASUREMENT
• Right of Use (ROU) Asset
• Balance sheet presentation separately as an asset
• Depreciated over the life of the lease
• Depreciation carried in profit and loss
• Reassessed for impairment
• Liability
• Balance sheet presentation separately as a liability
• Interest expense through profit and loss as interest
• Simplified reassessment
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