I am trying to determine if the concept of Principal vs. Agent in ASC 606 is present in ASC 842. If a 3rd party enters a transaction as a lessor, whereby the 3rd party takes ownership of the asset from the vendor momentarily before it is leased to the customer, would the price of the item be included in revenue (and thereby costs)?
ASC 606-10 states "An entity shall apply the guidance in this Topic to all contracts with customers, except the following : a. Lease Contracts within the scope of Topic 842, Leases (840 if 842 is not yet adopted)."
It isn't until ASC 606-55-(36-40) for Implementation Guidance and Illustrations does it discuss principal vs. agent.
ASC 842 doesn't discuss the topic, but I did find in the Deloitte ASC 842 implementation guide the following:
Accordingly, ASU 2018-20 addresses stakeholder concerns about the challenges related to determining costs paid by lessees directly to third parties on behalf of lessors by requiring lessors to exclude such costs from variable payments, and thus from lease revenue. Lessor costs are not a component in the contract because they are neither lease components nor nonlease components (e.g., services). Some common examples of lessor costs include property taxes and insurance in a real estate lease.
Although stakeholders requested a policy election, the amendments in ASU 2018-20 indicate that lessor costs that are paid directly to a third party by a lessor and then reimbursed by the lessee must be accounted for as variable payments. Paragraph BC28 of ASU 2018-20 notes that “[a]lthough the economics between Lessee-Paid and Lessee-Reimbursed are similar in that both may be costs of the lessor, the Board highlighted that all Lessee-Reimbursed costs are known amounts to the lessor and concluded that those costs should be accounted for as lessor costs.”
So the question is whether you believe the value of the leased item should be (grossed up) or should not be (net) included in the financials?
ASC 606-10 states "An entity shall apply the guidance in this Topic to all contracts with customers, except the following : a. Lease Contracts within the scope of Topic 842, Leases (840 if 842 is not yet adopted)."
It isn't until ASC 606-55-(36-40) for Implementation Guidance and Illustrations does it discuss principal vs. agent.
ASC 842 doesn't discuss the topic, but I did find in the Deloitte ASC 842 implementation guide the following:
Accordingly, ASU 2018-20 addresses stakeholder concerns about the challenges related to determining costs paid by lessees directly to third parties on behalf of lessors by requiring lessors to exclude such costs from variable payments, and thus from lease revenue. Lessor costs are not a component in the contract because they are neither lease components nor nonlease components (e.g., services). Some common examples of lessor costs include property taxes and insurance in a real estate lease.
Although stakeholders requested a policy election, the amendments in ASU 2018-20 indicate that lessor costs that are paid directly to a third party by a lessor and then reimbursed by the lessee must be accounted for as variable payments. Paragraph BC28 of ASU 2018-20 notes that “[a]lthough the economics between Lessee-Paid and Lessee-Reimbursed are similar in that both may be costs of the lessor, the Board highlighted that all Lessee-Reimbursed costs are known amounts to the lessor and concluded that those costs should be accounted for as lessor costs.”
So the question is whether you believe the value of the leased item should be (grossed up) or should not be (net) included in the financials?
