Transitioning to the ASC 842 Lease Accounting Standards

The Initial ASC 842 Transition feature allows you to perform the one time transition to begin accounting under the FASB ASC 842 standards.  The Transition feature is available only to "Admin" users.

Please review the iLeasePro-ASC-842-Lease-Accounting-Assumptions-and-Inputs to fully understand the assumptions, capabilities and restrictions of iLeasePro regarding the ASC 842 compliance standards.

IMPORTANT NOTE: THIS IS A ONE TIME PROCESS THAT SHOULD ONLY BE DONE AT TIME OF ADOPTION TO THE ASC842 LEASE ACCOUNTING CHANGES.  Modifications made after the initial adjustments are applied may cause data integrity and calculation issues.

TESTING THE TRANSITION - As long as you do not upload or import the journal entries created into your accounting system, you can test the effects of applying the transition by applying and unlocking.  See Testing the Transition Process and the Resulting Amortization Schedule and Journal Entries for more details.

iLeasePro relies on correct input from you. Lease data should be entered as specified in the original lease contract. If you have elected to use hindsight in transitioning from ASC 840 to ASC 842, you are responsible for updating the ASC 840 balances BEFORE inputting data into iLeasePro. iLeasePro does not make any adjustments for the practical expedients that you may have elected.

 

Pre-Existing Account Balances for a Operating Lease Under ASC 840

An operating lease could have the following account balances under ASC 840. You will need to enter the correct balances (after making any adjustments needed if you elect to use hindsight at transition) into the iLeasePro system. There is also variation across users regarding how they may have set up their accounting systems and account titles. Therefore, please make sure you understand and check before you enter these amounts. 

Note:  All amounts should be entered as positives. 

Prepaid Rent  

• • Accountants use this account for the following possible purposes:

• • • The lease payments are not made at the beginning of an accounting period or its end. Instead, lease payments are made in between. Any balance that remains to be expensed at the end of a period is a prepaid rent asset.

    • The lessee is required to prepay the lessor.

    • The lease payments are declining over time, and the requirement to straight line the lease expense results in an asset.

• Accrued Rent Liability

  • This account represents the flip side of a prepaid rent asset.

• Lease Incentives Liability

  • Cash advances received from the lessor that have not yet been amortized.

• Straight-Line Rent Deferral Liability

  • If prepaid rent asset or accrued rent liability incorporate the effects of straight-lining of lease expense, there would be no separate straight-lining rent asset or liability. However, if prepaid rent strictly represents rent paid in advance and accrued rent reflects rent payable, then the following will hold:

    • A straight-line rent asset will arise if contractual rents are declining over time. (Unlikely)

    • A straight-line rent liability will arise if contractual rents are rising over time. (Likely)

• IDC Asset
  • Initial direct costs, such as broker commissions that have not yet been expensed.

Pre-Existing Account Balances for a Finance Lease Under ASC 840

A finance lease could have the following account balances under ASC 840. You will need to enter the correct balances (after making any adjustments needed if you elect to use hindsight at transition) into the iLeasePro system. There is variation across users regarding how they may have set up their accounting systems and account titles.

• Capital Asset Lease: Gross - This asset is assumed to include any capitalized initial direct costs under ASC 840.
• Capital Asset Lease: Accumulated Depreciation - Accumulated amortization of the capital lease asset at the transition date.
• Capital Asset Lease Liability - This liability equals the present value of the remaining lease payments, including those made at transition.

Steps to complete Initial Transition/Adoption of the ASC 842 Standard Changes

1. Enter in the amount fields under the appropriate columns for each lease. This is a scrollable table to allow you to scroll right and left to access each required field.
2. Enter or select from calendar the adoption date.  The transition date will be auto filled with the current date.  Please change this date using the date selector to the date you will adopt the ASC 842 standard. 
3. Click on the "Apply Transition Net Adjustments" button to lock in the transition and adoption of the ASC 842 Standard.
   • Message box will appear to confirm whether to Continue or not.  To Continue, click on OK or click Cancel to stop this process.
4. If OK is selected, the page will be "Locked as Read Only". 
   • The Administrator has the option to "Unlock" this action prior to uploading any journal entries.  If a journal entry is uploaded into the Accounting System of record, correcting entries will be required if "Unlocked" and any modifications are made.

ASC 840 Beginning Balance Adjustments for Operating Leases

ASC 840 Beginning Balance Adjustments for Finance Leases

Select Transition Date from dropdown using the calendar selector.

A warning message will appear; click ok to continue or cancel to cancel.

After the valid transition date is entered and the adjustments are applied, the page will be locked from entering or updating any values.

 

Lease Accounting ASC 842 Transition Report

Select and Run the Lease Accounting ASC 842 Transition Report, shown below by the red arrow, to display the transition amounts that have been entered.