3.5 Period of Use
ASC 842-10-20 (reproduced in Appendix A) defines the term “period of use” as the “total period of time that an asset is used to fulfill a contract with a customer (including the sum of any nonconsecutive periods of time).”
The term is used throughout this chapter as well as in the Codification examples in Section 3.7. In several places in this chapter, we discuss interpretive issues related to the effect of the term “period of use” on the lease identification assessment, including the following:
- Evaluating the period of use when a substitution right exists in the assessment of whether the supplier has the practical ability to substitute alternative assets (see Section 3.3.3.1).
- Determining whether the customer has the right to obtain substantially all of the economic benefits from use of an asset in contracts in which the customer’s rights to economic benefits change (see Section 3.4.1.3).
“Period of use” is an added term in ASC 842-10-20 and clarifies an important
concept: a right to use an asset for nonconsecutive periods can be identified as a
lease. In these cases, the periods of nonuse should effectively be ignored in the
assessment of the right to direct the use and the right to obtain substantially all
of the economic benefits from use. The example below illustrates this point.
Example 3-29
Nonconsecutive
Periods
Two unrelated parties, Party X and Party Y,
enter into separate arrangements with the owner of an
explicitly identified parking garage. The first arrangement
gives X the right to use the parking garage from Monday
through Friday each week for 10 years. The second
arrangement gives Y the right to use the parking garage on
Saturday and Sunday each week for the same 10-year
period.
Assume that, during the periods stated in
the contract, X (for Monday through Friday each week) and Y
(for Saturday and Sunday each week) each (1) can obtain
substantially all of the economic benefits of the parking
garage through their exclusive use and (2) have the right to
direct the use of the parking garage. In addition, assume
that the owner of the parking garage does not have any
substitution rights, so the parking garage is an identified
asset.
Although nonconsecutive, the periods of use
are as follows:
-
Party X — 2,600 days in total, calculated as 5 days per week for 52 weeks each year for 10 years.
-
Party Y — 1,040 days in total, calculated as 2 days per week for 52 weeks each year for 10 years.
Party X would assess whether, throughout the
2,600 days, it has the right to control the use of an
identified asset. On the basis of the facts presented above,
X has a lease of the parking garage for nonconsecutive
periods.
Party Y would perform the same assessment
throughout its 1,040 days and, like X, would conclude that
it has a lease of the same parking garage for nonconsecutive
periods.
Party X and Y, as lessees, would account for
the lease in accordance with Section 8.4.3.4. The
owner of the parking garage would also account for two
leases as a lessor (see Chapter 9 for a
discussion of lessor accounting).