4.11 Leases
With limited exceptions, ASC 842 requires lessees to recognize an
ROU asset and a lease liability as of the lease commencement date, regardless of
lease classification. The implementation guidance in ASC 842-20-55-10 clarifies that
an ROU asset is a nonmonetary asset and a lease liability is a monetary liability.
Therefore, when a lease is denominated in a foreign currency, the ROU asset must be
remeasured in the functional currency by using the historical exchange rate (in a
manner consistent with the remeasurement of PP&E purchased in a foreign
currency, which is discussed in Section 4.10) and the lease liability must be remeasured by using
the current exchange rate (in a manner consistent with the remeasurement of
foreign-currency-denominated debt, which is discussed in Section 4.5).
Connecting the Dots
Questions have arisen regarding what rate should be used —
and how it should be used — to remeasure the ROU asset after a lease has
been modified and the modification was not accounted for as a separate
contract, specifically whether (1) the ROU asset, in its entirety, should be
remeasured by using the exchange rate as of the “new” lease commencement
date (i.e., the date of the lease modification) or (2) the historical
exchange rate as of the original lease commencement date should be applied
to the ROU asset established before the modification and the exchange rate
as of the date of the lease modification should be applied to any increase
in the ROU asset resulting from the modification (i.e., a bifurcated
approach to foreign currency remeasurement). (See Deloitte’s Roadmap
Leases for additional discussion.)