At long last, the official update has been released to give reporting entities the option not to restate prior comparative periods (as was originally required in ASC 842). Instead, if the optional transition relief is chosen, operating leases are capitalized based on the remaining rent and incremental borrowing rate in effect as of the date of implementation (which is January 1, 2019, for public entities using a calendar fiscal year). This was the subject of an exposure draft earlier this year, and we reported in March that the FASB had voted in favor of the change. However, only now have they gotten around to publishing it in Accounting Standards Update 2018-11.
The same ASU includes a practical expedient for lessees regarding separating the components of a lease contract. While lessees are permitted the practical expedient not to separate nonlease components from lease components (meaning it all gets capitalized), lessors did not have the option, as the FASB figured they would have more ability to determine their own costs. Now, however, the FASB is giving lessors an option to also combine lease and nonlease components. Like lessees, lessors must choose this by class of the underlying asset (for example, all vehicles, or all real estate). However, there are additional restrictions for when a lessor can avail himself of the option: 1) the nonlease component(s) would otherwise be accounted for under the new revenue guidance; 2) the timing and pattern of transfer are the same for nonlease and lease components, and 3) the lease, if accounted for separately from the nonlease component(s), would be an operating lease. If combined, and the nonlease component is the predominant component, the entire contract should be accounted for in accordance with Topic 606, Revenue Recognition. Otherwise, the entire contract is accounted for under Topic 842.
Our EZLease software permits you to specify the application date for ASC 842 separately from the implementation date. (IFRS 16 doesn't have a lookback option.) So whether you plan to stick with restating (which puts you in a deep minorty), or want to do a cutover on Jan. 1, or you have a fiscal calendar that doesn't match the wall calendar (including 12-period years with alternating 4- & 5-week periods as well as 13-period years), you can set up the dates for both implementation and application however works best for you.