Accounting for an acquisition under the ASC 842 Lease Accounting Standard involves several steps, including identifying and evaluating the leases associated with the acquisition, and determining the appropriate accounting treatment for those leases.
First, the acquirer must identify all leases that are associated with the acquired entity, including both operating and finance leases. This includes any real estate leases, equipment leases, and other lease agreements that the acquired entity is a party to.
Next, the acquirer must evaluate each lease to determine whether it is a right-of-use (ROU) asset and lease liability under ASC 842. This involves determining the lease term, the present value of the lease payments, and any residual value guarantees associated with the lease.
Once the leases have been identified and evaluated, the acquirer must determine the appropriate accounting treatment for each lease. Leases that are classified as ROU assets and lease liabilities should be recognized on the balance sheet at the acquisition date. The ROU assets should be measured at their fair value and the lease liabilities should be measured at their present value.
The acquirer should also consider any lease-related contingencies or contingencies that may arise from the acquisition. These contingencies must be evaluated and recorded in the financial statements.
In addition to these steps, the acquirer must also disclose information about the acquired leases in its financial statements, including the total lease payments, the lease term, and the present value of the lease liability.
It’s important to note that ASC 842 has specific requirements for accounting for an acquisition of a business that should be followed as well. The acquirer should consult with its accountant or auditor to ensure that it is in compliance with all of the requirements of ASC 842 related to the acquisition.