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Road to Compliance: Guide to Comply with FASB ASC 842

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STRATEGY POLICY INVENTORY DATA SYSTEM PROCESS CONTROL SUSTAIN 9 tangoanalytics.com How do you define a lease under the new standard? First, let's agree on how a lease is defined under the new standard: "A lease is an arrangement that conveys the right to control the use of an identified asset for a period of time in exchange for consideration." This definition has two key points: control and identified asset. What is involved in control? 1. 2. What is meant by an identified asset? It's something that could be either implicitly or explicitly identified in a contract and can be a physically distinct portion of a larger asset. If the supplier has a substantive substitution right, the contract isn't a lease. A supplier has the substantive right to substitute an asset if it both: • • The new standards apply to property, plant and equipment leases, but do not apply to leases of intangible assets (i.e. goodwill, patents, trademarks and copyrights), leases to explore for or use nonregenerative resources, leases of biological assets, leases of inventory or leases of assets under construction. The right to obtain substantially all the economic benefits from use of the identified asset. The right to control the use of the identified asset – to direct its use over the term of the lease. Has the practical ability to substitute the identified asset Can benefit from exercising that right of substitution ROAD TO LEASE COMPLIANCE | INVENTORY INVENTORY

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