16.10 Amounts Previously Recognized From Business Combinations
ASC 842-10
65-1 The following
represents the transition and effective date information
related to Accounting Standards Update . . . No. 2016-02,
Leases (Topic 842) . . .
h. If an entity has previously recognized an asset
or a liability in accordance with Topic 805 on
business combinations relating to favorable or
unfavorable terms of an operating lease acquired as
part of a business combination, the entity shall do
all of the following:
1. Derecognize that asset and
liability (except for those arising from leases that
are classified as operating leases in accordance
with Topic 842 for which the entity is a lessor).
2. Adjust the carrying amount
of the right-of-use asset by a corresponding amount
if the entity is a lessee.
3. Make a corresponding
adjustment to equity if assets or liabilities arise
from leases that are classified as sales-type leases
or direct financing leases in accordance with Topic
842 for which the entity is a lessor. Also see (w).
. . .
Lessee
For any assets or liabilities recognized in accordance with ASC
805 that are related to favorable or unfavorable terms of an operating lease for
which an entity is a lessee, the entity should derecognize the asset or
liability and commensurately adjust the ROU asset. In other words, if a lessee
has a favorable lease intangible (asset), the lessee should derecognize the
intangible asset and add an offsetting amount to the ROU asset. If a lessee has
an unfavorable lease intangible (liability), the lessee should derecognize the
liability and reduce the ROU asset by the same amount.
Lessor
When a lessor has previously recognized assets or liabilities
for an off-market operating lease in a business combination, the asset or
liability should continue to be recognized separately from the lease accounting.
Generally, an acquirer in a business combination that is a lessor under a
sales-type or direct financing lease would include any off-market assets or
liabilities in the net investment in the lease (i.e., a separate asset or
liability would not be recognized). In those cases, the lessor would not make
any adjustment for the off-market terms. However, if any separate balances exist
regarding a lessor’s sales-type or direct financing lease (other than in-place
lease intangibles), the entity should derecognize the asset or liability and
“make a corresponding adjustment to equity” in accordance with ASC
842-10-65-1(h).