The FASB has issued a proposal that would address challenges to implementing the FASB’s new lease standard.

The first item addressed in the proposal is around determining the fair value of the underlying asset by lessors that are not manufacturers or dealers. Under previous guidance, fair value of the leased property for lessors who are not manufacturers or dealers is ordinarily the underlying asset’s cost, reflecting any volume discounts that may apply. Prior to this proposal from the FASB, lessors who previously qualified under the exception were required to apply the definition of fair value as the price that would be received to sell the underlying asset in an orderly transaction between market participants at the measurement date (exit price). The amendments in the proposed update would reinstate the exception into the new guidance, which would allow lessors that are not manufacturers or dealers to use their cost, with certain exceptions.

The second item addressed is the presentation on the statement of cash flows for sales-type and direct financing leases. Under the proposed guidance, lessors that are depository and lending institutions within the scope of Topic 942 would present all “principal payments received under leases” within investing activities.

The full text of the Exposure Draft is available here.

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