Joint Project IASB & FASB Discussion Paper 2009 Exposure Draft Planned 2010 Final Standard Planned 2011

Comments were due July 16, 2009 This document focused on accounting for lessees with some very sketchy thoughts on how lessor accounting would change Examples are from comment letter of Teresa Gordon

Capitalize leases (that meet criteria) at PVMLP Contingent rentals are not included in lease payments (with an exception for those based on price index, etc.) Lease term always ends at date of bargain purchase option Capitalize ALL leases at PV of expected lease payments (PVELP) Contingent rentals must be estimated and included in the present value of the lease payments Purchase option is just a variation of a renewal option

FASB: use lower of incremental borrowing rate or implicit rate if known IASB: use implicit rate if practicable to determine, otherwise incremental borrowing rate Lessees would always use incremental borrowing rate Apparently some disagreements between IASB and FASB initial opinions as to whether one should use current incremental borrowing rates instead of the original rate when assumptions about lease term change

Lease term: very specific rules under FASB with similar but more generalized guidance under IASB Liability is not re-evaluated at each balance sheet date Use “most likely” lease term Appears that the new lease standard will be less rule based and require more judgment Lease term would be re- evaluated at each balance sheet date and the liability and asset accounts would be adjusted if necessary

Contingent rentals are generally not projected. Even when based on an index, the PVMLP is based on the rental payments at the current index (that’s why it is “minimum” lease payment computation) Guaranteed residual values stay on books at “maximum” value IASB proposes using a weighted probability expected value for contingent rents and guaranteed residual values FASB is leaning toward a simpler “most likely” amount for contingent rentals and guaranteed residual values Guaranteed residual value would be difference between guarantee and the asset’s expected value at end of lease