4
3.1.2 Nonlease components .......................................................................................89
3.1.3 Activities and payments that do not represent separate components.........................92
3.1.4 Obligations to pay lessor taxes and insurance premiums ........................................95
3.1.5 Lessee practical expedient .................................................................................95
3.1.6 Lessor practical expedient ..................................................................................97
3.1.7 Contract combinations ..................................................................................... 103
3.2 Lessee measurement, allocation, and subsequent measurement of consideration ........... 104
3.2.1 Lessee measurement ...................................................................................... 104
3.2.2 Lessee initial allocation .................................................................................... 106
3.2.3 Lessee subsequent measurement and allocation ................................................. 107
3.3 Lessor measurement, allocation, and subsequent measurement of consideration ............ 108
3.3.1 Lessor measurement ....................................................................................... 108
3.3.2 Lessor initial allocation..................................................................................... 114
3.3.3 Lessor subsequent measurement and allocation.................................................. 121
4. Lease classification ........................................................................................................... 123
4.1 Classification criteria – lessee and lessor................................................................... 125
4.1.1 Criterion 1: Transfer of ownership ...................................................................... 126
4.1.2 Criterion 2: Option to purchase.......................................................................... 127
4.1.3 Criterion 3: Lease term .................................................................................... 127
4.1.4 Criterion 4: Present value of lease payments and guaranteed residual value............ 129
4.1.5 Criterion 5: No alternative use ........................................................................... 130
4.2 Additional lessor classification criteria ....................................................................... 132
4.2.1 Present value of lease payments and guaranteed residual value ............................ 134
4.2.2 Collectibility.................................................................................................... 134
4.3
Other classification matters ..................................................................................... 137
4.3.1 Reassessment of lease classification ................................................................. 137
4.3.2 Related-party lease classification ...................................................................... 137
4.3.3 Lessee indemnification for environmental contamination ....................................... 139
4.3.4 Leases involving facilities owned by a government unit or authority ........................ 139
4.3.5 Leases acquired in a business combination ........................................................ 141
5. Lessee accounting ............................................................................................................ 142
5.1 General ................................................................................................................ 142
5.1.1 Short-term leases ........................................................................................... 142
5.2 Initial measurement ................................................................................................ 145
5.2.1 Initial measurement of the lease liability.............................................................. 145
5.2.2 Initial measurement of the right-of-use asset ....................................................... 146
5.3 Finance lease subsequent measurement................................................................... 148
5.3.1 Finance lease expense recognition .................................................................... 149
5.4 Operating lease subsequent measurement ................................................................ 150
5.4.1 Operating lease expense recognition ................................................................. 152
5.4.2 Lease incentives neither paid nor payable at commencement ................................ 155
5.5 Amortization of leasehold improvements.................................................................... 157
5.6 Lessee costs to place the underlying asset in service .................................................. 157
5.7 Impairment of the right-of-use asset .......................................................................... 157
5.7.1 Post-impairment asset amortization – operating lease .......................................... 160
5.7.2 Post-impairment asset amortization – finance lease ............................................. 160
5.7.3 Example of impairment of a right-of-use asset ..................................................... 161
5.7.4 Lessee decision to abandon right-of-use asset .................................................... 162
5.8 Lease modification ................................................................................................. 162
5.8.1 Modification accounted for as a separate contract ................................................ 163