A leasing arrangement conveys the use of an asset from one party to another without transferring ownership. The leasing arrangement may take various forms. Some arrangements are clearly within the scope of lease accounting, for example, a legal form lease that provides an explicit contractual right to use a building for a specified period of time in exchange for consideration. However, the right to use an asset can also be conveyed through arrangements that are not leases in legal form. For example, a hospital may execute an arrangement to purchase consumables and services from a vendor through an arrangement that entitles the hospital to receive free medical equipment for a period of time. Although not a lease in legal form, the rights to the medical equipment may be within the scope of lease accounting.
ASC 842, Leases, identifies arrangements that are to be accounted for as leases. This chapter discusses how to identify which arrangements, or components within an arrangement, should be accounted for under ASC 842. ASC 842 specifically excludes arrangements for the right to use a natural resource and arrangements that transfer the right to use certain assets other than property, plant, or equipment from its scope. See LG 2.2 for additional information on the scope of ASC 842.
This chapter also discusses how to identify the components to be evaluated for lease accounting and how to differentiate the lease and nonlease components.
Arrangements with a special purpose entity that contain a lease may require the lessee to consolidate the special purpose entity under the variable interest entity model. See CG 2 for additional information.
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