2.1 Property, Plant, and Equipment
ASC 842-10 — Glossary
Contract
An agreement between two or more parties that creates enforceable rights and obligations.
Lease
A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or
equipment (an identified asset) for a period of time in exchange for consideration.
As indicated above, ASC 842-10-20 defines a lease as a “contract . . . that
conveys the right to control the use of . . . property, plant, or equipment”
(PP&E). In paragraph BC110 of ASU 2016-02, the Board acknowledges that
only leases of “land and/or depreciable assets” are within the scope of ASC 842.
Therefore, because the FASB ultimately decided to include only leases of PP&E
within the scope of ASC 842, the scope of ASC 840 is effectively carried forward.
Accordingly, leases of nondepreciable assets (e.g., inventory) are outside the scope
of ASC 842, as detailed in ASC 842-10-15-1 (reproduced in Section 2.2).
In addition, an agreement involving PP&E must create enforceable rights and obligations to be within
the scope of ASC 842. That is, it must meet the definition of a “contract” in ASC 842, which is defined the
same way as it is in ASC 606.