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Leases

IASB meeting summaries and observer notes


 IASB / FASB December 2011


 

 

The IASB and FASB discussed cancellable leases and revenue recognition and disclosure requirements for lessors with leases of investment property not within the scope of the receivable and residual approach.

Cancellable leases

The boards discussed the accounting treatment for leases that (a) are cancellable by both the lessee and lessor with minimal termination payments, or (b) include renewal options that must be agreed to by both the lessee and lessor. The boards tentatively decided that the lease proposals should be applied only to periods for which enforceable rights and obligations arise. Consequently, such cancellable leases would meet the definition of short-term leases if the initial non-cancellable period, together with any notice period, is less than one year. (Twelve IASB members and six FASB members agreed.) In reaching that decision, the boards also tentatively decided not to change their previous decisions regarding the definitions of short-term leases and of the lease term. (Ten IASB members and all FASB members agreed.)

Revenue recognition for lessors with leases of investment property

The IASB tentatively decided that, for leases of investment property, a lessor should recognise rental income on a straight-line basis or on another systematic basis, if that basis is more representative of the pattern in which rentals are earned from the investment property. (Fourteen IASB members agreed.)

The FASB tentatively decided that, for leases of investment property, a lessor that is not an investment property entity or an investment company should recognise rental income on a straight-line basis or on another systematic basis, if that basis is more representative of the pattern in which rentals are earned from the investment property. (All FASB members agreed.)

The boards also tentatively decided that a lessor with leases of investment property that are not within the scope of the receivable and residual approach should recognise only the underlying investment property on its statement of financial position (as well as any accrued or prepaid rental income). (Fourteen IASB and all FASB members agreed.)

Disclosure requirements for lessors with leases of investment property

The boards discussed the disclosure requirements for lessors with leases of investment property that are not within the scope of the receivable and residual approach. The boards tentatively decided to require disclosure of the following:

  1. A maturity analysis of the undiscounted future non-cancellable lease payments. The maturity analysis should show, at a minimum, the undiscounted cash flows to be received in each of the first five years after the reporting date and a total of the amounts in the years thereafter. That maturity analysis would be separate from the maturity analysis of the payments related to the right to receive lease payments under the receivable and residual approach.
  2. Both minimum contractual lease income and variable lease payment income within the table of lease income.
  3. The cost and carrying amount of property on lease or held for leasing by major classes of property according to nature or function, and the amount of accumulated depreciation in total.
  4. Information about leases that are not within the scope of the receivable and residual approach, consistent with paragraph 73 of the 2010 exposure draft (which has been updated with decisions that the boards have reached to date). That information would include:
    1. a general description of those lease arrangements;
    2. information about the basis and terms on which variable lease payments are determined;
    3. information about the existence and terms of options, including for renewal and termination;
    4. a qualitative description of purchase options, including information about the percentage of assets subject to such agreements; and
    5. any restrictions imposed by lease arrangements.

(Fourteen IASB members and all FASB members agreed.)

Date: 12/13/2011


Agenda Papers