Actual free cam
Since I was getting a few glazed looks from the participants, I knew I had better up my game and completely understand the accounting for common area maintenance charges (CAM) and property taxes under the new lease accounting standard! ASC 842-10-15-28 requires entities to identify the separate lease components within a contract.An entity shall consider the right to use an underlying asset to be a separate lease component if both the following criteria are met: Clearly, charges for CAM do not meet these criteria so they are not a lease component.
If an observable standalone price is not available, we would have to estimate one maximizing the use of observable information.
That’s great, because these items are already separated from the lease and we should not add them back in. Here’s a summary of where the guidance set out in this post can be found in IFRS 16: So, there you have it!
Therefore, in a net lease, variable payments by the lessee for property taxes and insurance are excluded from lease payments, whereas in a gross lease, fixed payments by the lessor for such items are included in the lease payments. See Example 12 within ASC 842 for further information (ASC 842-10-55-141 through 55-145) for further information. You’ll be happy to learn that there are no differences in the accounting for these charges under IFRS as compared to U. I hope this post has helped you understand the accounting for CAM charges, property taxes, and insurance under both ASC 842 and IFRS 16.
We were going through the new lease accounting standard (ASC 842) and I was reviewing a class discussion question that had me second guessing the answer I was providing to the participants.
The question dealt with how to account for common area maintenance charges and property taxes under ASC 842 and IFRS 16.