Leasing eBook: Transitioning to ASC 842, using the Portfolio Approach to group leases
For every identified lease, companies will be required to create a lease liability calculated as the present value of the future fixed payments and a corresponding asset (“right of use” asset). The right of use asset will be amortized over the life of the lease. The income statement will be impacted by a straight-line lease expense item that would essentially contain an interest component with the amortization of the asset being the plug-in order to achieve straight line lease expense over the life of the lease. If you’ve ever had this question- When can an entity apply the “Portfolio Approach” under ASC 842? then this is the eBook for you.
As Portfolio Approach, like most of ASC 842, requires professional judgement to be exercised. This Portfolio Approach to leases is specifically addressed by the FASB in BC120 “Topic 842 specifies the accounting required for an individual lease. Many entities have a large number of leases, and, as a result, some respondents noted practical challenges in applying the model on a lease-by-lease basis. These respondents questioned whether it would always be necessary to apply Topic 842 on a lease-by-lease basis. Get answers to many such questions simply download our eBook or view it.
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