Table of Contents INTERPRETATIONS OF TOPIC 840, ACCOUNTING FOR LEASES. Paragraph : General...Subtopic

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1 Preface... Preface i Recent Developments...Developments i INTERPRETATIONS OF TOPIC 840, ACCOUNTING FOR LEASES Leases Overall (840-10) Status Paragraph : General...Subtopic Overview and Background Paragraphs through 05-08: General...Subtopic Paragraph through 05-9C: Lessees...Subtopic Paragraph : Lessors...Subtopic Objectives Paragraph : General...Subtopic Scope and Scope Exceptions Paragraphs through 15-2: General...Subtopic Interpretation A: Lease Broker Accounting...Subtopic Paragraphs through 15-5: General...Subtopic Interpretation A: Determining Whether an Arrangement Contains a Lease...Subtopic Interpretation B: Transportation or Throughput Agreements...Subtopic Interpretation C: Power Purchase Contracts...Subtopic Interpretation D: Facility Management Arrangements...Subtopic Interpretation E: Management Contracts and Sale-Managebacks Involving Real Estate...Subtopic Interpretation F: Manager Involvement in Asset Construction...Subtopic / CCH. All rights reserved. Contents i

2 Accounting for Leases Interpretation G: Take-or-Pay Contracts... Subtopic Interpretation H: Applicability of Topic 840 to Undivided Interests... Subtopic Paragraphs through 15-15: General... Subtopic Interpretation A: Equipment Used in Connection with a Lease to Extract Natural Resources... Subtopic Interpretation B: Asset Constructed from Precious Metals... Subtopic Paragraphs through 15-19: General... Subtopic Interpretation A: Accounting for Multiple-Element Arrangements Containing a Lease... Subtopic Paragraphs through 15-21: General... Subtopic Interpretation A: Scope Application to Residual Value Guarantees... Subtopic Paragraph : Lessees... Subtopic Paragraph : Lessors... Subtopic Topical Definitions Section : Glossary: Acquiree through Bargain Purchase Option... Subtopic Interpretation A: Purchase Options Stated in Terms of a Fixed Amount or Percentage... Subtopic Interpretation B: Purchase Option at Fair Value As Encumbered by Renewal Options... Subtopic Interpretation C: Bargain Purchase Option As Encumbered by Fixed-Price Renewals... Subtopic Interpretation D: Residual Sharing Arrangements That Create Bargain Purchase Options... Subtopic Interpretation E: Use of Appraisal Information... Subtopic Section : Glossary: Bargain Renewal Option... Subtopic Interpretation F: Renewal Rents Lower Than Rents During Primary Lease Term... Subtopic Section : Glossary: Capital Lease through Contingent Rentals... Subtopic Interpretation G: Contingent Rent Based on Corporate Sales... Subtopic Contents ii 6/ CCH. All rights reserved.

3 Accounting for Leases Table of Contents Interpretation H: Disguised Minimum Lease Payments...Subtopic Interpretation I: Evaluating Uncertainty in Contingent Rents...Subtopic Section : Glossary: Direct Financing Lease through Estimated Economic Life...Subtopic Interpretation J: Determining Economic Life of Leased Property in Connection with a Real Estate Lease...Subtopic Interpretation K: Economic Life vs. Book Depreciation Life...Subtopic Section : Glossary: Fair Value of Leased Property...Subtopic Interpretation L: Effect of a Favorable Lease Encumbering Subleased Property on Determination of the Fair Value...Subtopic Interpretation M: Effect of Volume Discounts on Lessor s Determination of Fair Value...Subtopic Interpretation N: Transfer of an Option to Acquire Property...Subtopic Section : Glossary: Fiscal Funding Clause through Incremental Borrowing Rate...Subtopic Interpretation O: Effect of Certain Financings Tax Attributes on the Calculation of Incremental Borrowing Rate...Subtopic Interpretation P: Determining Subsidiary s Incremental Borrowing Rate...Subtopic Interpretation Q: Secured vs. Unsecured Borrowing Rate...Subtopic Interpretation R: Lessee Unable to Estimate an Incremental Borrowing Rate...Subtopic Interpretation S: Fixed vs. Floating and Foreign Currency Incremental Borrowing Rate...Subtopic Section : Glossary: Indirectly Related to the Leased Property through Interest Rate Implicit in the Lease...Subtopic Interpretation T: Determination of Investment Tax Credit Realizable by the Lessor...Subtopic Section : Glossary: Lease through Lease Inception...Subtopic Interpretation U: Lease Classification Date vs. Date Leased Asset Is Recorded...Subtopic Interpretation V: Effect of Construction Cost Overruns on Lease Inception...Subtopic / CCH. All rights reserved. Contents iii

4 Accounting for Leases Section : Glossary: Lease Term... Subtopic Interpretation W: Effect of an Economic Penalty on the Lease Term... Subtopic Interpretation X: Short Base-Lease Periods in a Sale-Leaseback Transaction... Subtopic Interpretation Y: Effect of Lessee Loans and Guarantees to Lessor... Subtopic Interpretation Z: History of Renewing Leases through Exercise of Lease Option... Subtopic Interpretation AA: Bargain Purchase Option at End of Lease Renewal Period... Subtopic Interpretation AB: Effect of Residual Value Guarantee on Lease Term... Subtopic Section : Glossary: Leveraged Lease through Penalty... Subtopic Interpretation AC: Penalty : Existence of Economic Penalties Resulting from Factors External to the Lease Agreement... Subtopic Interpretation AD: Examples of Significant Economic Penalties... Subtopic Section : Glossary: Probable through Substantially All... Subtopic Recognition Paragraphs : General... Subtopic Interpretation A: Multiple Equipment Leases Having Varying Lives and Terms... Subtopic Interpretation B: Accounting for Software Licenses... Subtopic Interpretation d.A: Point in Time for the 90% Recovery Test... Subtopic Interpretation d.B: Determination by Lessee of Investment Tax Credit to Be Realized by Lessor for the 90% Recovery Test... Subtopic Interpretation d.C: Effect of an Investment Tax Credit Basis Reduction on the Lessee s Evaluation of the Leased Property s Fair Value... Subtopic Interpretation d.D: Investment Tax Credit Transferred to Lessee through the Lease Terms... Subtopic Interpretation d.E: Gross-Up of Investment Tax Credit Transferred to Lessee... Subtopic Contents iv 6/ CCH. All rights reserved.

5 Accounting for Leases Table of Contents Paragraphs through 25-3: General...Subtopic Paragraph : General...Subtopic Interpretation A: Effect of Lease Payments Denominated in a Foreign Currency...Subtopic Interpretation B: Impact of Asset Retirement Obligations on Lease Classification...Subtopic Paragraphs through 25-6: General...Subtopic Interpretation A: Minimum Lease Payments: Security Deposits and Related Imputed Interest...Subtopic Interpretation B: Commitment to Buy Leased Asset if Property Is Not Refinanced...Subtopic Interpretation C: Effect of Lessee Guarantee of Residuals on Lessee Accounting for an Operating Lease...Subtopic Interpretation D: Factors to Consider in Estimating Executory Costs...Subtopic Interpretation E: Deposits vs. Residual Value Insurance Premiums...Subtopic Interpretation F: Guarantee by Lessee of Lessor s Debt and Lessee Loans to Lessor...Subtopic Interpretation G: Form of Minimum Lease Payments...Subtopic Interpretation H: Make-Whole Premiums...Subtopic Interpretation I: Allocation of Residual Value Guarantees...Subtopic Interpretation J: Future Leasehold Improvements As Minimum Lease Payments...Subtopic Interpretation K: Existence of Substantial Penalties in the Event of Failure to Renew the Lease...Subtopic Interpretation L: Existence of Substantial Penalties in the Event of Failure to Exercise a Purchase Option...Subtopic Interpretation M: Going Concern Presumption in Evaluating Economic Penalties...Subtopic Paragraph : General...Subtopic Interpretation A: Determining Financial Substance of Third-Party Guarantee of Residuals or Rental Payments Beyond Term of Lease...Subtopic / CCH. All rights reserved. Contents v

6 Accounting for Leases Interpretation B: Effect of a Nonrecourse Loan on Lessor s Minimum Lease Payments... Subtopic Paragraphs through 25-9: General... Subtopic Interpretation A: Residual Value Guarantees Related to Excess Wear and Tear... Subtopic Paragraphs through 25-12: General... Subtopic Interpretation A: Payments to Be Made in the Event of Default... Subtopic Interpretation B: Lessee Indemnification of Environmental Contamination... Subtopic Paragraphs through 25-20: General... Subtopic Interpretation A: Sales-Type Lease Involving Real Estate and Equipment... Subtopic Interpretation B: Lessor s Determination of the Equipment s Fair Value in a Combined Real Estate Lease... Subtopic Paragraphs through 25-24: General... Subtopic Interpretation A: Lessee s Determination of Fair Value... Subtopic Interpretation B: Land and Building Elements of Leases Involving Only Part of a Building... Subtopic Interpretation C: Classification of Leases of an Undivided Interest in Property, Plant, or Equipment... Subtopic Paragraph : General... Subtopic Interpretation A: Leases of Certain Property Owned by a Governmental Unit or Authority... Subtopic Interpretation B: Build-to-Suit Leases Involving Property Owned by a Governmental Unit or Authority... Subtopic Paragraph : General... Subtopic Interpretation A: Determination of When Terms of Lease Are Affected by Related Lessor and Lessee... Subtopic Paragraph : Lessees... Subtopic Paragraphs through 25-33: Lessees... Subtopic Interpretation A: Evaluating Reasonableness of Lessor s Implicit Rate in the Lease... Subtopic Contents vi 6/ CCH. All rights reserved.

7 Accounting for Leases Table of Contents Interpretation B: Use of Lessor s Maximum Implicit Interest Rate by Lessee...Subtopic Interpretation C: Use of Lessor s Implicit Rate by Lessee...Subtopic Paragraph : Lessees...Subtopic Interpretation A: Tax Indemnifications in Lease Agreements...Subtopic Paragraphs through 25-36: Lessees...Subtopic Interpretation A: Lessee Classification of Leases Involving Real Estate...Subtopic Paragraphs through 25-39B: Lessees...Subtopic Paragraphs through 25-42: Lessors...Subtopic Interpretation A: Determining if Costs Create Important Uncertainties...Subtopic Interpretation B: Classification by Lessor of a Real Estate Lease As a Direct Financing Lease...Subtopic Paragraphs through 25-45: Lessors...Subtopic Interpretation a.A: Effect of Nonrecourse Debt on Classification As a Sales-Type Lease...Subtopic Interpretation b.A: Accounting for Investment Tax Credit from Assets Leased under Direct Financing Leases...Subtopic Interpretation b.B: Accounting for Investment Tax Credit for a Direct Financing Lease with a Term Shorter Than the Asset s Useful Life...Subtopic Interpretation c.A: Effect of Nonrecourse Debt on Classification As a Sales-Type Lease...Subtopic Interpretation c.B: Applicability of Leveraged Lease Accounting If the Lessor Receives No Tax Benefits...Subtopic Interpretation c.C: Requirement for Lessor s Net Investment to Decline and Rise...Subtopic Interpretation c.D: Applicability of Leveraged Lease Accounting If the Lessor Enters into Nonrecourse Loan after Lease Inception...Subtopic Interpretation c.E: Nonrecourse Debt and Substantial Leverage in a Leveraged Lease...Subtopic Interpretation c.F: Leveraged Leases: Three-Party Criterion...Subtopic / CCH. All rights reserved. Contents vii

8 Accounting for Leases Interpretation c.G: Existing Assets of the Lessor and Leveraged Lease Accounting... Subtopic Interpretation c.H: Leveraged Leases Involving Foreign Sales Corporations... Subtopic Interpretation c.I: Multiple Lessees in a Leveraged Lease... Subtopic Interpretation c.J: Build-to-Suit Transactions in a Leveraged Lease... Subtopic Interpretation c.K: Leveraged Leases Lessor That Is a Partnership or Variable Interest Entity... Subtopic Paragraphs through 25-50: Lessors... Subtopic Paragraphs through 25-52: Lessors... Subtopic Interpretation A: Meaning of at or Near the End of the Existing Lease Term... Subtopic Interpretation B: Renewal or Extension of an Existing Sales-Type or Direct Financing Lease through an Intermediary Third Party... Subtopic Interpretation C: Renewal or Extension of an Operating Lease... Subtopic Paragraph : Lessors... Subtopic Interpretation A: Tax Indemnifications in Lease Agreements... Subtopic Paragraphs through 25-69: Lessors... Subtopic Interpretation A: Lessor Classification of Leases Involving Real Estate... Subtopic Interpretation B: Real Estate Investment Trusts... Subtopic Initial Measurement Paragraph : Lessees... Subtopic Paragraph : Lessors... Subtopic Subsequent Measurement Paragraphs through 35-3A: General... Subtopic Interpretation A: Reassessing whether an Arrangement Contains a Lease... Subtopic Paragraph : General... Subtopic Interpretation A: New Leases vs. Lease Modifications... Subtopic Contents viii 6/ CCH. All rights reserved.

9 Accounting for Leases Table of Contents Interpretation B: Troubled Lease Restructurings...Subtopic Interpretation C: Replacement of Nuclear Fuel Core in Connection with a Nuclear Fuel Lease...Subtopic Interpretation D: Accounting for a Premium Paid by the Lessor to Induce Lease Cancellation by the Lessee...Subtopic Interpretation E: Requirement to Assess the Collectibility of Lease Payments in a Troubled Lease Restructuring...Subtopic Interpretation F: Revisions and Extensions Not Considered Part of the Original Lease Term Capital Leases...Subtopic Paragraph : General...Subtopic Interpretation A: Applicability of Topic 820 to Finance Lease Acquired in a Business Combination...Subtopic Paragraphs through 35-9A: Subsequent Measurement General...Subtopic Interpretation A: Lessee s Accounting for Leasehold Improvements...Subtopic Interpretation B: Accounting for Leasehold Improvements Involving Airport Facilities...Subtopic Paragraph : Subsequent Measurement Lessors...Subtopic Derecognition Paragraphs through 40-2: Lessees...Subtopic Paragraph through 40-4: Lessors...Subtopic Other Presentation Matters Section : General...Subtopic Interpretation A: Lessor s Income Statement Presentation of an Investment Tax Credit...Subtopic Interpretation B: Presentation of Leasing Activities in a Consolidated Balance Sheet...Subtopic Paragraphs through 45-3: General...Subtopic Paragraph : Lessors...Subtopic / CCH. All rights reserved. Contents ix

10 Accounting for Leases Disclosure Paragraph : General... Subtopic Interpretation A: Disclosures about Fair Value of Financial Instruments... Subtopic Interpretation B: Leases with Related Parties... Subtopic Interpretation C: Concentrations of Credit Risk... Subtopic Interpretation D: Disclosures about Costs Incurred on Exit or Disposal Activities... Subtopic Paragraphs through 50-3: Lessees... Subtopic Interpretation A: Disclosures about Indemnifications and Guarantees... Subtopic Paragraphs through 50-5: Lessors... Subtopic Interpretation A: Classification of Lease Related Items as Monetary or Nonmonetary... Subtopic Implementation Guidance Paragraphs through 55-6: General... Subtopic Interpretation A: Inception Date of a Master Lease Agreement... Subtopic Paragraphs through 55-11: General... Subtopic Interpretation A: Limitation of Lessee Obligation under Residual Value Deficiency Provisions... Subtopic Interpretation B: Effect of Lessee Guarantee of Residuals on Lessee Accounting for a Capital Lease If the Estimated Residual Value and Amount of Guarantee Are Different... Subtopic Interpretation A: Fees Paid for Third-Party Credit Guarantees and Title Insurance... Subtopic Paragraphs through 55-29: General... Subtopic Illustrations Paragraphs through 55-39: General... Subtopic Paragraphs : Lessees... Subtopic Implementation Guidance Paragraphs through 55-46: Lessors... Subtopic Contents x 6/ CCH. All rights reserved.

11 Accounting for Leases Table of Contents Illustrations Paragraph : Lessors...Subtopic Relationships Paragraphs through 60-5: General...Subtopic Paragraphs through 60-7: Lessees...Subtopic Transition and Open Effective Date Information Paragraph : Transition and Open Effective Date Information...Subtopic Leases Operating Leases (840-20) Status Paragraph : General...Subtopic Overview and Background Paragraphs through 05-2: General...Subtopic Paragraph : Lessees...Subtopic Paragraph : Lessors...Subtopic Scope and Scope Exceptions Paragraph : General...Subtopic Paragraph : Lessees...Subtopic Paragraph : Lessors...Subtopic Topical Definitions Section : Glossary...Subtopic Recognition Paragraph : General...Subtopic Interpretation A: Sale or Transfer of Operating Lease Renewal or Purchase Option by Lessee...Subtopic Interpretation B: Deferral of Moving Costs Incurred by a Lessee...Subtopic Interpretation C: Lessor s Assessment of the Collectibility of Rent Receivable...Subtopic Paragraph : General...Subtopic Interpretation A: Nonlevel Rents for Regulated Operations...Subtopic / CCH. All rights reserved. Contents xi

12 Accounting for Leases Interpretation B: Time Pattern of the Physical Use of the Property in an Operating Lease... Subtopic Interpretation C: Lessee s Rent Expense If Lease Includes Both Scheduled Rent Increases and Contingent Rents... Subtopic Interpretation D: Effect of Revision of Operating Leases on Deferred Rent Credits... Subtopic Interpretation E: Change in Provision of an Operating Lease... Subtopic Interpretation F: Lessee s Purchase of Leased Asset (Under an Operating Lease) during the Lease Term... Subtopic Interpretation G: Lessor s Recognition of Contingent Rent... Subtopic Paragraphs through 25-7: General... Subtopic Interpretation A: Lessee Pays Initial Direct Lease Costs... Subtopic Interpretation B: Lessor Pays Lessee s Costs... Subtopic Interpretation C: Lease Incentives in an Operating Lease... Subtopic Interpretation D: Incentive from the Same Lessor... Subtopic Paragraphs through 25-15: Lessees... Subtopic Paragraphs through 25-22: Lessors... Subtopic Interpretation A: Purchase of a Portfolio of Leases... Subtopic Paragraph Lessees... Subtopic Subsequent Measurement Paragraph : Lessees... Subtopic Interpretation A: Lessee Loss Recognition on Operating Leases That Are Part of an Asset Group... Subtopic Interpretation B: Accounting for Guarantees and Indemnifications Included in Lease Agreements... Subtopic Paragraphs through 35-5: Lessors... Subtopic Interpretation A: Lessor s Accounting for Deferred Rent... Subtopic Contents xii 6/ CCH. All rights reserved.

13 Accounting for Leases Table of Contents Interpretation B: Change in Provisions of an Operating Lease...Subtopic Interpretation C: Loss on Exit or Disposal Activities Involving Assets under Operating Leases...Subtopic Interpretation D: Calculation of Loss on Subleases and Similar Transactions...Subtopic Interpretation A: Illustration of Accounting If Sale Is Treated as a Borrowing...Subtopic Interpretation B: Sale or Assignment of Lease Payments Due under an Operating Lease...Subtopic Derecognition Paragraphs through 40-2: Lessees...Subtopic Paragraphs through 40-5: Lessors...Subtopic Interpretation A: Sales of Equipment to a Related or Third-Party Lessor...Subtopic Interpretation B: Sales of Equipment Subsequently Repurchased Subject to Operating Leases...Subtopic Interpretation C: Effect of a Long-Term Management Agreement on Sale Recognition...Subtopic Interpretation D: Effect of Agreement to Repurchase or Bid on Equipment Sold to Third-Party Purchaser on Recognition of Sale...Subtopic Interpretation E: Effect of Residual Sharing on Sale Recognition of Asset Subject to an Operating Lease...Subtopic Interpretation F: Effect of Assumption of Risk of Loss on Sale Recognition...Subtopic Interpretation G: Effect of Significant Administrative Services on Sale Recognition...Subtopic Interpretation H: Effect of Maintenance or Warranty Risks on Sale Recognition...Subtopic Interpretation I: Nondiscriminatory Remarketing Agreements...Subtopic Interpretation J: Lessor s Nonrecourse Debt Related to Equipment under Operating Leases...Subtopic Interpretation K: Meaning of Substantial Risks of Ownership...Subtopic / CCH. All rights reserved. Contents xiii

14 Accounting for Leases Interpretation L: Sale of Undivided Interest in Asset Subject to Operating Lease... Subtopic Interpretation M: Seller s Purchase of Insurance to Cover Retained Risk... Subtopic Interpretation N: Sale-Leaseback Sublease Transactions... Subtopic Paragraph : Lessors... Subtopic Other Presentation Matters Paragraph : Lessees... Subtopic Paragraphs through 45-3: Lessors... Subtopic Disclosure Paragraphs through 50-3: Lessees... Subtopic Interpretation A: Disclosure of Rent Commitments... Subtopic Paragraphs through 50-4A: Lessors... Subtopic Illustrations Paragraphs through 55-3: General... Subtopic Implementation Guidance Paragraphs through 55-6: Lessees... Subtopic Leases Capital Leases (840-30) Status Paragraphs : General... Subtopic Paragraphs S00-1: General... Subtopic Overview and Background Paragraphs through 05-2: General... Subtopic Paragraph : Lessees... Subtopic Paragraph : Lessors... Subtopic Scope and Scope Exceptions Paragraph : General... Subtopic Paragraph : Lessees... Subtopic Paragraph : Lessors... Subtopic Contents xiv 6/ CCH. All rights reserved.

15 Accounting for Leases Table of Contents Topical Definitions Section : Glossary...Subtopic Recognition Paragraphs through 25-2: Lessees...Subtopic Interpretation A: Accounting for Purchased Lease Residuals...Subtopic Interpretation A: Lease Payments Adjusted Periodically Based on Changes in Indices Specified in the Lease Contract...Subtopic Paragraph : Lessors...Subtopic Interpretation A: Payments Under Sales-Type Leases Periodically Adjusted Based on Changes in a Government Index...Subtopic Interpretation B: Lease Payments Adjusted Periodically Based on Changes in Indices Specified in the Lease Contract...Subtopic Paragraphs through 25-6: Lessors...Subtopic Interpretation A: Accounting for Future Service Costs under a Sales-Type Lease...Subtopic Interpretation B: Use of Estimated Residual Value in Excess of Fair Value at Lease Inception...Subtopic Interpretation C: Sales-Type Leases Involving Software and Hardware...Subtopic Paragraphs through 25-10: Lessors...Subtopic Interpretation A: Accounting for the Purchase of a Lease Portfolio...Subtopic Initial Measurement Paragraphs through 30-4: Lessees...Subtopic Interpretation A: Lessee s Initial Recording of a Capital Lease...Subtopic Interpretation A: Effect of Cost Overruns on a Lessee s Recording of a Capital Lease...Subtopic Paragraph : Lessees...Subtopic Paragraphs through 30-15: Lessors...Subtopic Interpretation A: Lessor s Initial Recording of a Sales-Type Lease...Subtopic / CCH. All rights reserved. Contents xv

16 Accounting for Leases Subsequent Measurement Subsection : Lessees... Subtopic Interpretation A: Lessor Accounting for Maintenance Deposits... Subtopic Paragraphs through 35-4: Lessees... Subtopic Interpretation A: Depreciable Life of an Asset Held under a Capital Lease... Subtopic Paragraphs through 35-9: Lessees... Subtopic Interpretation A: Lessee s Subsequent Accounting for a Capital Lease... Subtopic Interpretation B: Amortization of Asset and Reduction of Lease Obligation If a Residual or Stated Guarantee Exists... Subtopic Interpretation C: Lease Payments Adjusted Periodically Based on Changes in Indices Specified in the Lease Contract... Subtopic Paragraphs through 35-12: Lessees... Subtopic Interpretation A: Accounting by the Original Lessee for Subleases and Similar Transactions... Subtopic Interpretation B: Lessee Loss Recognition on Capital Leases and Operating Leases That Are Part of an Asset Group... Subtopic Interpretation C: Exception to Sublease Rules in a Sale-Leaseback-Sublease Transaction... Subtopic Paragraphs through 35-14: Lessees... Subtopic Paragraphs through 35-20: Lessees... Subtopic Interpretation A: Lessee s Accounting for Changes in the Provisions of a Capital Lease... Subtopic Paragraphs through 35-25: Lessors... Subtopic Interpretation A: Lessee s Accounting for Estimated Residual value... Subtopic Interpretation A: Lessor s Subsequent Accounting for a Sales-Type Lease... Subtopic Interpretation B: Amortization of Initial Direct Costs... Subtopic Interpretation A: Measurement of a Loss from Decline in Residual Value That Is Other Than Temporary... Subtopic Interpretation B: Upward Adjustments of Guaranteed Residual Values... Subtopic Contents xvi 6/ CCH. All rights reserved.

17 Accounting for Leases Table of Contents Interpretation C: Adjustment of Residual Value in Connection with a Change in Lease Terms...Subtopic Paragraphs through 35-30: Lessors...Subtopic Interpretation A: Change in Provisions of a Sales-Type or Direct Financing Lease...Subtopic Interpretation B: Upgrades to Equipment Under Lease...Subtopic Paragraph : Lessors...Subtopic Interpretation A: Change in Lease Provisions Resulting from Refunding of Taxable Debt...Subtopic Paragraphs through 35-36: Lessors...Subtopic Interpretation A: Illustration of Leveraged Lease Accounting...Subtopic Interpretation B: Effect of a Third-Party Residual Value Guarantee on Income Recognition under Leveraged Lease Accounting...Subtopic Interpretation C: Call Options Written on Leveraged Lease Residuals...Subtopic Interpretation D: Effect of Basis Reduction from Investment Tax Credit on Leveraged Leases...Subtopic Interpretation E: Initial Direct Costs from Investments in Leveraged Leases...Subtopic Interpretation F: Effect of Investment Tax Credit Earned but Not Currently Realizable...Subtopic Interpretation G: Effect of Intra-entity Tax Allocation Agreements on Leveraged Lease Accounting...Subtopic Paragraphs through 35-47: Lessors...Subtopic Interpretation A: Illustration of Cumulative Catch-Up Adjustment Required for a Change in Significant Assumptions...Subtopic Interpretation B: Effect of Change in Tax Benefit Cash Flows on Estimated Total Net Income...Subtopic Interpretation C: Effect of Refinancing Nonrecourse Debt...Subtopic Interpretation D: Leveraging-Up a Leveraged Lease...Subtopic / CCH. All rights reserved. Contents xvii

18 Accounting for Leases Interpretation E: Changes in Assumptions Affecting Residual Values in a Leveraged Lease... Subtopic Interpretation F: Restructuring a Troubled Leveraged Lease... Subtopic Interpretation G: Tax Indemnity Payments in a Leveraged Lease... Subtopic Interpretation H: Extending a Leveraged Lease... Subtopic Interpretation I: Contingent Rents in a Leveraged Lease... Subtopic Paragraphs through 35-52: Lessors... Subtopic Paragraph : Lessors... Subtopic Interpretation A: Lessor s Sale of Substantially All of the Minimum Rent Payments... Subtopic Interpretation B: Lessor s Exchange of Investments in Leases... Subtopic Paragraph S35-1: General... Subtopic Derecognition Paragraphs through 40-5: Lessees... Subtopic Interpretation A: Gain on Termination of a Capital Lease... Subtopic Paragraphs through 40-9: Lessors... Subtopic Interpretation A: Sales of Lease Receivables... Subtopic Interpretation B: Sale of Residual Interests Before Lease Termination... Subtopic Interpretation C: Nonrecourse Debt Collateralized by Lease Receivables and/or Leased Assets... Subtopic Interpretation D: Sale of Lease Receivables with Recourse... Subtopic Other Presentation Matters Paragraphs through 45-3: Lessees... Subtopic Paragraphs through 45-7: Lessors... Subtopic Interpretation A: Statement of Cash Flows... Subtopic Interpretation B: Leveraged Leases in a Classified Balance Sheet... Subtopic Contents xviii 6/ CCH. All rights reserved.

19 Accounting for Leases Table of Contents Interpretation C: Presentation of the Investment Tax Credit by a Leveraged Lessor in the Income Statement...Subtopic Disclosure Paragraphs through 50-3: Lessees...Subtopic Paragraphs : Lessors...Subtopic Paragraphs through 50-6: Lessors...Subtopic Illustrations Paragraphs through 55-13: Lessees...Subtopic Implementation Guidance Paragraphs through 55-16: Lessors...Subtopic Interpretation A: Delayed Equity Contributions...Subtopic Paragraphs through 55-21: Lessors...Subtopic Illustrations Paragraphs through 55-56: Lessors...Subtopic Interpretation A: Accounting for a Leveraged Lease in a Business Combination...Subtopic Paragraphs through 55-60: Lessors...Subtopic Implementation Guidance Paragraphs S55-1: General...Subtopic SEC Materials Paragraph S99-1 and S99-2: General...Subtopic Leases Sale-Leaseback Transactions (840-40) Status Paragraph : General...Subtopic Overview and Background Paragraphs through 05-6: General...Subtopic Paragraph : Lessees...Subtopic Paragraph : Lessors...Subtopic Paragraphs through 05-11: Real Estate...Subtopic / CCH. All rights reserved. Contents xix

20 Accounting for Leases Scope and Scope Exceptions Paragraph : General... Subtopic Paragraph : General... Subtopic Paragraphs through 15-6: Lessees... Subtopic Paragraph : Lessors... Subtopic Paragraphs through 15-10: Real Estate... Subtopic Interpretation A: Sale-Leaseback Involving an Insignificant Amount of Real Estate... Subtopic Interpretation B: Minor Leasebacks... Subtopic Interpretation C: Lease of Real Estate Assets in a Business Combination... Subtopic Interpretation D: Sale with an Option to Lease... Subtopic Interpretation E: Bifurcation of Land and Building... Subtopic Interpretation F: Contribution-Leasebacks, Spin-Off-Leasebacks, Exchange-Leasebacks, and Lease-Leasebacks... Subtopic Interpretation G: Transfer of an Option to Purchase Property to a Developer... Subtopic Interpretation H: Rental Shortfall Agreements... Subtopic Topical Definitions Section : Glossary... Subtopic Section S20: Glossary... Subtopic Recognition Paragraph : General... Subtopic Paragraph : Lessees... Subtopic Interpretation A: Sale-Leaseback of Real Estate and Equipment... Subtopic Paragraphs through 25-4: Lessees... Subtopic Interpretation A: Fair Value of Property in a Sale-Leaseback Transaction... Subtopic Interpretation B: Effect of Actual Rents vs. Reasonable Rents on Gain Recognition... Subtopic Contents xx 6/ CCH. All rights reserved.

21 Accounting for Leases Table of Contents Interpretation C: Effect of Sale-Leaseback-Sublease Structure on Amount of Gain to Be Amortized...Subtopic Interpretation D: Seller-Lessee Treatment of Third-Party Indemnification Costs of a Residual Value Guarantee...Subtopic Interpretation E: Sale of Equipment Subject to an Existing Intra-entity Lease in a Sale-Leaseback...Subtopic Interpretation F: Property Sold to a Party That Leases Different Property to Seller...Subtopic Interpretation G: Multiple Properties Sold and Leased Back From the Same Lessor...Subtopic Interpretation H: Lessee Obligation or Option to Buy Back Equipment Subject to Lessor s Ability to Obtain Debt Financing...Subtopic Interpretation I: Meaning of Substantially All...Subtopic Interpretation J: Indicated Losses...Subtopic Interpretation K: Potential Tax Consequences of Lease Termination or Expiration in a Sale-Leaseback...Subtopic Paragraphs through 25-7: Lessees...Subtopic Paragraph : Lessors...Subtopic Paragraphs through 25-10: Real Estate...Subtopic Interpretation A: Sale-Leaseback of Real Estate and Sale of Condominium Interest Involving the Same Buyer...Subtopic Interpretation A: Substantially Different Terms...Subtopic Paragraph : Real Estate...Subtopic Interpretation A: Appropriate Interest Rate to Apply under the Financing Method...Subtopic Paragraphs through 25-18: Real Estate...Subtopic Interpretation A: Option to Repurchase the Property...Subtopic Interpretation B: Right of First Offer...Subtopic Interpretation C: Lease Payments Accelerate in an Event of Default...Subtopic / CCH. All rights reserved. Contents xxi

22 Accounting for Leases Interpretation D: Form of Continuing Involvement Held by Parent or Other Related Entity... Subtopic Interpretation E: Tax Indemnifications and Other Participation in Buyer-Lessor s Tax Consequences... Subtopic Interpretation F: Contingent Forms of Continuing Involvement... Subtopic Interpretation G: Changes in the Nature of the Seller-Lessee s Involvement... Subtopic Interpretation H: Effect of Seller-Lessee Assuming Property Risks during the Lease Term... Subtopic Interpretation I: Perpetual Fixed Price Renewal Options... Subtopic Interpretation J: Seller Retains Ownership of Underlying Land... Subtopic Interpretation K: Hell or High Water Clauses... Subtopic Interpretation L: Effect of Lessee s Indemnities on Sale-Leaseback Accounting... Subtopic Interpretation M: Sale-Leaseback of Real Estate Subject to a Power Sale Agreement... Subtopic Interpretation N: Decommissioning Liability for Nuclear Power Plants... Subtopic Interpretation O: Indemnity for Lessor Becoming a Public Utility Holding Entity... Subtopic Interpretation A: Purchase Option in Renewal Term Only... Subtopic Interpretation B: Economic Obsolescence Clause... Subtopic Interpretation A: Effect of an Uncollateralized Irrevocable Letter of Credit... Subtopic Interpretation B: Meaning of Related Party... Subtopic Interpretation C: Meaning of Nonrecourse Financing... Subtopic Interpretation A: Forms of Continuing Involvement Under Subtopic , but Not under Subtopic Subtopic Interpretation B: Contingent Rents... Subtopic Contents xxii 6/ CCH. All rights reserved.

23 Accounting for Leases Table of Contents Interpretation A: Partial Sales of Real Estate...Subtopic Interpretation B: Lessee Participation in Lessor s Interest Savings...Subtopic Initial Measurement Paragraphs through 30-6: Lessees...Subtopic Interpretation A: Consideration of Executory Costs in Sale-Leasebacks...Subtopic Subsequent Measurement Paragraphs through 35-3: Lessees...Subtopic Interpretation A: Effect of Changed Circumstances on Profit Amortization Over Leaseback...Subtopic Paragraph : Lessees...Subtopic Other Presentation Matters Section :...Subtopic Interpretation A: Balance Sheet Classification of Deferred Gain on Sale-Capital-Leaseback...Subtopic Disclosure Paragraph : Lessees...Subtopic Paragraph : Real Estate...Subtopic Interpretation A: Partial Sales of Real Estate Balance Sheet Characterization...Subtopic Implementation Guidance Paragraphs through 55-15: Lessees...Subtopic Interpretation A: Indemnifications and Guarantees in Build-to-Suit Lease Agreements...Subtopic Interpretation B: Indemnification for Acts Beyond the Lessee s Control...Subtopic Interpretation C: Lessee Indemnification of General Contractors and Subcontractors...Subtopic Interpretation D: Distinguishing Between Down Payments and Purchase Options...Subtopic Interpretation E: Costs Incurred by Lessee s Equity Investee...Subtopic Interpretation F: Arrangements That Require a Lessee to Post Collateral...Subtopic / CCH. All rights reserved. Contents xxiii

24 Accounting for Leases Interpretation G: Lessee s Obligation to Obtain Insurance for a Build-to-Suit Project... Subtopic Interpretation H: Effect of Unreimbursed Soft Costs on Whether Lessee is Owner of a Build-to-Suit Project... Subtopic Interpretation I: Effect of Construction Cost Overruns on Maximum Guarantee Test... Subtopic Interpretation J: Determining the Fair Value of a Completed Build-to-Suit Asset... Subtopic Interpretation K: Effect of a Ground Lease During the Construction Term... Subtopic Interpretation L: Determining Whether an Investment in a Lessor Is an Investment in Real Estate... Subtopic Interpretation M: Effect of Lessee Renewal Options on Applicability of Build-to-Suit Guidance... Subtopic Paragraphs through 55-24: Lessees... Subtopic Interpretation A: Accounting by Seller and Purchaser if Purchaser Leases Property Back to Seller When the Operating Lease Expires... Subtopic Paragraphs through 55-28: Lessees... Subtopic Interpretation A: Effect of a Residual Value Guarantee on Profit Recognition in an Equipment Sale-Leaseback... Subtopic Paragraphs through 55-34: Lessees... Subtopic Paragraphs through 55-36: Lessees... Subtopic Interpretation A: Master Leases... Subtopic Interpretation B: Subleases to Related Parties... Subtopic Interpretation C: Measurement Issues Related to Subleasing... Subtopic Paragraphs through 55-41: Lessees... Subtopic Interpretation A: Accounting for the Sale of Property Subject to the Seller s Pre-Existing Lease... Subtopic Paragraphs through 55-47: Lessees... Subtopic Interpretation A: Build-to-Suit Transactions Costs Incurred by the Lessee and Transfers of Options Held... Subtopic Contents xxiv 6/ CCH. All rights reserved.

25 Accounting for Leases Table of Contents Interpretation B: Lessee s Transfer of an Option to Acquire Property Currently under Lease...Subtopic Paragraph : Lessees...Subtopic Illustrations Paragraphs through 55-53: Lessees...Subtopic Interpretation A: Meaning of Sale-Leaseback Accounting...Subtopic Paragraphs through 55-62: Lessees...Subtopic Interpretation A: Application of the Deposit Method...Subtopic Paragraphs through 55-70: Lessees...Subtopic Interpretation A: Application of the Financing Method...Subtopic Paragraphs through 55-94: Lessees...Subtopic Implementation Guidance Paragraphs S55-1 through S55-3: General...Subtopic SEC Materials Paragraph S99-1 through S99-3: General...Subtopic / CCH. All rights reserved. Contents xxv

26 Accounting for Leases INDUSTRY TOPICS AND INTERPRETATIONS Leases Not-for-Profit Entities ( ) Overview and Background Paragraph : General... Subtopic Scope and Scope Exceptions Paragraph : General... Subtopic Topical Definitions Section : Glossary... Subtopic Implementation Guidance Paragraphs through 55-4: General... Subtopic Leases Real Estate-Real Estate Investment Trusts ( ) Overview and Background Paragraph : General... Subtopic Scope and Scope Exceptions Paragraph : General... Subtopic Topical Definitions Section : Glossary... Subtopic Recognition Paragraph : General... Subtopic Interpretation A: Costs Incurred by a Service Corporation on Behalf of a Real Estate Investment Trust... Subtopic Leases Real Estate TimeSharing Activities ( ) Overview and Background Paragraph : General... Subtopic Scope and Scope Exceptions Paragraphs through 15-XX: General... Subtopic Topical Definitions Section : Glossary... Subtopic Contents xxvi 6/ CCH. All rights reserved.

27 Accounting for Leases Table of Contents Recognition Paragraphs through 25-2: General...Subtopic Leases Regulated Operations ( ) Overview and Background Paragraph : General...Subtopic Scope and Scope Exceptions Paragraph : General...Subtopic Topical Definitions Section : Glossary...Subtopic Recognition Paragraphs through 25-2: General...Subtopic Subsequent Measurement Paragraphs through 35-2: General...Subtopic Other Presentation Matters Paragraphs through 45-4: General...Subtopic Implementation Guidance Paragraph : General...Subtopic APPENDICES Appendix I: Index of Accounting Literature Cited... Appendix I 1 6/ CCH. All rights reserved. Contents xxvii