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.
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.