This document was updated to add an appendix that discusses the FASB staff Q&A issued on April 10, 2020, regarding the accounting for rent concessions that directly result from the COVID-19 pandemic. This appendix contains background information on the staff Q&A, as well as Deloitte’s interpretive guidance on frequently asked questions related to it.
FASB Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts With Customers.
FASB Accounting Standards Codification Topic 842, Leases.
FASB Accounting Standards Update (ASU) No. 2016-13, Measurement of Credit Losses on Financial Instruments.
FASB Accounting Standards Update No. 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts.
FASB Proposed Accounting Standards Update (ASU), Revenue From Contracts With Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities.
Entities should consult with their accounting advisers regarding the acceptability of the model applied to account for the concession when not applying the modification framework.
FASB Staff Q&A, Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic.
International Financial Reporting Standard (IFRS) 16, Leases.
In remeasuring the lease liability, the lessee should remeasure other variable lease payments that are based on an index or a rate by using the index or rate on the remeasurement date.
The ROU asset cannot be reduced below zero; any excess would be recognized in net income.
Monthly straight-line expense of $11,750 is determined on the basis of total lease payments of $423,000 over the noncancelable lease term of 36 months.
In this example, the lease cost did not change because total lease payments were not revised.
In our description of this approach, we have assumed that the collectibility of lease payments remains probable after the rent concession. For more information about a lessor’s assessment of collectibility in light of COVID-19-related concessions, see the Collectibility section and Section 220.127.116.11 of Deloitte’s A Roadmap to Applying the New Leasing Standard.
The change in the receivable in the concession period reflects the net impact of the straight-line lease revenue offset by the negative variable lease revenue.
The net increase to the lease receivable of $35,250 reflects an increase for unpaid billing of $35,400, partially offset by a decrease to the straight-line lease receivable of $150 ascribed to the lessor’s original straight-line revenue calculation.
The net decrease to the lease receivable of $18,750 reflects cash repayment of previously deferred amounts of $17,700 and a decrease to the straight-line lease receivable of $1,050 ascribed to the lessor’s original straight-line revenue calculation.
The net decrease to the lease receivable of $19,650 reflects cash repayment of previously deferred amounts of $17,700 and a decrease to the straight-line lease receivable of $1,950 ascribed to the lessor’s original straight-line revenue calculation.