Topic 842 Case Study

Now that Topic 842 has been published it has replaced Topic 840 which covered the previous leased motel. An important point that is covered in Topic 842 is the main difference that relays between the previous and new lease model. The following information discloses what differs:
The Board decided that, consistent with all three proposals, lessees should be required to recognize the assets and liabilities arising from leases on the balance sheet. Throughout the project, the Board consulted extensively on the approach to lease expense recognition and considered a number of alternatives. The feedback received indicated that stakeholders had various views about the economics of lease transactions. The Board ultimately reached the conclusion that the economics of leases can vary for a lessee and that those economics should be reflected in the financial statements; therefore, Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. …show more content…
Operating leases are still classified as an operating lease and recognized using the straight-line method. Changes made to the lessor accounting model were primarily made “to aligned with, or were derived from, the revenue recognition guidance that preceded Topic 606” (Accounting Standards Update No. 2016-02, Leases (Topic 842). The consistent with the transfer of control principle for a sale in Topic 606 is also important for the lessor accounting to be align with. Other than this modifications the lessor just needs to comply and to follow up with the information of its renter and the updated revenue recognition that was made in