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CoStar’s Lease Accounting

Center of Excellence

Present:

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CoStar Real Estate Manager Application Software. Information presented about specific functionality,

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Your Panelists Today

• Khalil Bouban is a former Lease Accounting Manager with Home Depot (3 years). He is a CoStar subject matter expert with more than 13 years of experience in accounting and finance.

Khalil Bouban, CPASr. Lease Accounting Implementation Consultant

• John Balmforth is a member of the Customer Support Team at Costar and has spent a few years in both Public Accounting and Corporate Accounting roles prior to joining CoStar.

John Balmforth (JP) Technical Support Consultant, Lease Accounting

• Tim has close to 20 years of experience in the accounting profession (more than 14 of those years at Deloitte) and is one of the firm’s leading experts on the FASB’s and IASB’s lease accounting requirements (i.e., ASC Topic 842 and IFRS 16).

Tim Kolber

Managing Director, Deloitte & Touche LLP


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If time allows a Q&A portion

Polling questions during the webinar

Examples of the modifications in Excel and the Application 15Separate Contract

16AIncrease Term - No classification change

16BIncrease Term -classification change

17Additional right, not a Separate Contract

18Reduction in Scope

19Reduction in Consideration

Accounting Overview and Rules on Remeasurements

Today’s Agenda


Excel Schedules reflect Examples 15 – 19 in ASC topic 842-10-55-160 thru 55-189

Original Contract - Lease Cost/PV CalculationYR Payment Discount PV Payments

1 100,000 6.000% 94,340

2 100,000 89,000

3 100,000 83,962

4 100,000 79,209

5 100,000 74,726

6 100,000 70,496

7 100,000 66,506

8 100,000 62,741

9 100,000 59,190

10 100,000 55,839

Tot Payments 1,000,000 PV Payments: 736,008.71

Period Cost 100,000

Original Contract (10 Year Term) - No Accounting Impact

P&L

Beginning

Balance

Liability

Accretion

Lease

Payment

Ending

Balance

Beginning

Balance

Asset

Reduction

Ending

Balance

Lease

Cost

(736,009) 736,009

IDCs 0 -

Incentives 0 -

1 (736,009) (44,161) 100,000 (680,170) 736,009 (55,839) 680,170 100,000

2 (680,170) (40,810) 100,000 (620,980) 680,170 (59,190) 620,980 100,000

3 (620,980) (37,259) 100,000 (558,239) 620,980 (62,741) 558,239 100,000

4 (558,239) (33,494) 100,000 (491,733) 558,239 (66,506) 491,733 100,000

5 (491,733) (29,504) 100,000 (421,237) 491,733 (70,496) 421,237 100,000

6 (421,237) (25,274) 100,000 (346,511) 421,237 (74,726) 346,511 100,000

7 (346,511) (20,791) 100,000 (267,302) 346,511 (79,209) 267,302 100,000

8 (267,302) (16,038) 100,000 (183,340) 267,302 (83,962) 183,340 100,000

9 (183,340) (11,000) 100,000 (94,340) 183,340 (89,000) 94,340 100,000

10 (94,340) (5,660) 100,000 0 94,340 (94,340) (0) 100,000

Balance Sheet - Lease Liability Balance Sheet - ROU Asset


…..and the corresponding Schedules in CoStar


ASC 842 Lessee Model – Lease Modification Guidance Overview

Lease modification

Grants an additional ROU

Extends or reduces lease term

At stand-alone price

Not at stand-alone price

Whether at stand-alone price or not


Fully or partially terminates lease

Only changes consideration

• Recognize the lease modification as a new lease, separate from the original lease

• Reassess classification and use updated lease payments and discount rate to remeasure the lease liability and ROU asset

• Reassess classification, remeasure the lease liability, decrease a proportionate amount of the ROU asset, and recognize any difference as a gain/loss




Copyright © 2020 Deloitte Development LLC. All rights reserved 36 USC 220506


EXAMPLE 15: MODIFICATION ACCOUNTED FOR AS A SEPARATE CONTRACT (842-10-55-160 through 55-161)



Modified Contract (Additional Space / 5 Year Term) - Accounted for as a Separate Contract

P&L

Beginning

Balance

Liability

Accretion

Lease

Payment

Ending

Balance

Beginning

Balance

Asset

Reduction

Ending

Balance

Lease

Cost

(460,226) 460,226

0 -

1 (460,226) (28,764) 110,000 (378,990) 460,226 (81,236) 378,990 110,000

2 (378,990) (23,687) 110,000 (292,677) 378,990 (86,313) 292,677 110,000

3 (292,677) (18,292) 110,000 (200,969) 292,677 (91,708) 200,969 110,000

4 (200,969) (12,561) 110,000 (103,529) 200,969 (97,439) 103,529 110,000

5 (103,529) (6,471) 110,000 - 103,529 (103,529) - 110,000


Modified Contract - Lease Cost/PV Calculation

YR Payment Discount PV Payments

1 110,000 6.250% 103,529

2 110,000 97,439

3 110,000 91,708

4 110,000 86,313

5 110,000 81,236

Tot Payments 550,000 PV Payments: 460,226

Period Cost 110,000

Original Contract (10 Year Term) - No Accounting Impact


EXAMPLE 16A: MODIFICATION INCREASING LEASE TERM / NO CLASSIFICATION CHANGE (842-10-55-162 thru 55-165)



Modified Contract - Lease Term Changes to 15 Years/Payment Increased to $110,000

(classification does not change)P&L

Beginning

Balance

Liability

Accretion

Lease

Payment

Ending

Balance

Beginning

Balance

Asset

Reduction

Ending

Balance

Lease

Cost

IDC (736,009) 736,009

IN 0 -

1 0 -

2 (736,009) (44,161) 100,000 (680,169) 736,009 (55,839) 680,169 100,000

3 (680,169) (40,810) 100,000 (620,979) 680,169 (59,190) 620,979 100,000

4 (620,979) (37,259) 100,000 (558,238) 620,979 (62,741) 558,238 100,000

5 (558,238) (33,494) 100,000 (491,732) 558,238 (66,506) 491,732 100,000

(491,732) (29,504) 100,000 (421,236) 491,732 (70,496) 421,236 100,000

Lease liability adjustment: (351,358) 351,358

6 Post-modification balance: (772,594) 772,594

7 (772,594) (54,082) 110,000 (716,676) 772,594 (55,918) 716,676 110,000

8 (716,676) (50,167) 110,000 (656,843) 716,676 (59,833) 656,843 110,000

9 (656,843) (45,979) 110,000 (592,822) 656,843 (64,021) 592,822 110,000

10 (592,822) (41,498) 110,000 (524,319) 592,822 (68,502) 524,319 110,000

11 (524,319) (36,702) 110,000 (451,022) 524,319 (73,298) 451,022 110,000

12 (451,022) (31,572) 110,000 (372,593) 451,022 (78,428) 372,593 110,000

13 (372,593) (26,082) 110,000 (288,675) 372,593 (83,918) 288,675 110,000

14 (288,675) (20,207) 110,000 (198,882) 288,675 (89,793) 198,882 110,000

15 (198,882) (13,922) 110,000 (102,804) 198,882 (96,078) 102,804 110,000

(102,804) (7,196) 110,000 - 102,804 (102,804) - 110,000

Total Payments 1,600,000

Prior Lease Cost (500,000)

Remaining Cost 1,100,000

Period Cost 110,000


Modified Contract - Lease Cost/PV Calculation

YR Payment Discount PV Payments

1 110,000 7.000% 102,804

2 110,000 96,078

3 110,000 89,793

4 110,000 83,918

5 110,000 78,428

6 110,000 73,298

7 110,000 68,502

8 110,000 64,021

9 110,000 59,833

10 110,000 55,918

Tot Payments 1,100,000 PV Payments 772,594

Period Cost 110,000


EXAMPLE 16B - MODIFICATION INCREASING LEASE TERM / CHANGE IN CLASSIFICATION (842-10-55-166 thru 55-167)



Modified Contract - Lease Term Changes to 15 Years / Payment Increased to $110,000

(classification changes)

Beginning

Balance

Liability

Accretion Lease Payment

Ending

Balance

Beginning

Balance

Asset

Reduction

Ending

Balance

Lease Cost 1-5

Interest 6-10 Amortization

(736,009) 736,009

IDCs - -

Incentives - -

1 (736,009) (44,161) 100,000 (680,169) 736,009 (55,839) 680,169 100,000

2 (680,169) (40,810) 100,000 (620,979) 680,169 (59,190) 620,979 100,000

3 (620,979) (37,259) 100,000 (558,238) 620,979 (62,741) 558,238 100,000

4 (558,238) (33,494) 100,000 (491,732) 558,238 (66,506) 491,732 100,000

5 (491,732) (29,504) 100,000 (421,236) 491,732 (70,496) 421,236 100,000

Lease liability adjustment: (351,358) 351,358

Post-modification balance: (772,594) 772,594

6 (772,594) (54,082) 110,000 (716,676) 772,594 (77,259) 695,335 54,082 77,259

7 (716,676) (50,167) 110,000 (656,843) 695,335 (77,259) 618,075 50,167 77,259

8 (656,843) (45,979) 110,000 (592,822) 618,075 (77,259) 540,816 45,979 77,259

9 (592,822) (41,498) 110,000 (524,319) 540,816 (77,259) 463,556 41,498 77,259

10 (524,319) (36,702) 110,000 (451,022) 463,556 (77,259) 386,297 36,702 77,259

11 (451,022) (31,572) 110,000 (372,593) 386,297 (77,259) 309,038 31,572 77,259

12 (372,593) (26,082) 110,000 (288,675) 309,038 (77,259) 231,778 26,082 77,259

13 (288,675) (20,207) 110,000 (198,882) 231,778 (77,259) 154,519 20,207 77,259

14 (198,882) (13,922) 110,000 (102,804) 154,519 (77,259) 77,259 13,922 77,259

15 (102,804) (7,196) 110,000 - 77,259 (77,259) (0) 7,196 77,259

Balance Sheet - Lease Liability Balance Sheet - ROU Asset P&L

Modified Contract - Lease Cost/PV CalculationYR Payment Discount PV Payments

1 110,000 7.000% 102,804

2 110,000 96,078

3 110,000 89,793

4 110,000 83,918

5 110,000 78,428

6 110,000 73,298

7 110,000 68,502

8 110,000 64,021

9 110,000 59,833

10 110,000 55,918

Tot Payments 1,100,000 PV Payments 772,594

Period Cost 110,000


EXAMPLE 17: MODIFICATION GRANTING AN ADDITIONAL RIGHT OF USE (842-10-55-168 through 55-176)



P&L

Beginning

Balance

Liability

Accretion

Lease

Payment

Ending

Balance

Beginning

Balance

Asset

Reduction

Ending

Balance

Lease

Cost

(736,009) 736,009

IDC 0 0

Incentive 0 0

1 (736,009) (44,161) 100,000 (680,170) 736,009 (55,839) 680,170 100,000

2 (680,170) (40,810) 100,000 (620,980) 680,170 (59,190) 620,980 100,000

3 (620,980) (37,259) 100,000 (558,239) 620,980 (62,741) 558,239 100,000

4 (558,239) (33,494) 100,000 (491,733) 558,239 (66,506) 491,733 100,000

5 (491,733) (29,504) 100,000 (421,237) 491,733 (70,496) 421,237 100,000

(421,237) 421,237

Adjust 102,332 (102,332)

6 (318,905) (22,323) 77,778 (263,450) 318,905 (55,455) 263,450 77,778

7 (263,450) (18,442) 77,778 (204,114) 263,450 (59,336) 204,114 77,778

8 (204,114) (14,288) 77,778 (140,624) 204,114 (63,490) 140,624 77,778

9 (140,624) (9,844) 77,778 (72,690) 140,624 (67,934) 72,690 77,778

10 (72,690) (5,088) 77,778 - 72,690 (72,690) - 77,778

Balance Sheet - ROU AssetBalance Sheet - Lease Liability

Accounting For Component #1:

Discount rate: 7.000%

YR Payment PV value

1 77,778 72,690

2 77,778 67,934

3 77,778 63,490

4 77,778 59,336

5 77,778 55,455

388,890 318,905

Accounting For Component #2:

Discount rate: 7.500%

YR Payment PV value

1 72,222 67,183

2 72,222 62,496

3 72,222 58,136

4 72,222 54,080

5

288,888 241,895

P&L

Beginning

Balance

Liability

Accretio

Lease

Payment

Ending

Balance

Beginning

Balance

Asset

Reduction

Ending

Balance

Lease

Cost

1

2

3

4

5

6

Acct (241,895) 241,895

PPD Rent 22,222

7 (241,895) (18,142) 72,222 (187,815) 264,117 (59,636) 204,481 77,778

8 (187,815) (14,086) 72,222 (129,679) 204,481 (63,692) 140,789 77,778

9 (129,679) (9,726) 72,222 (67,183) 140,789 (68,052) 72,738 77,778

10 (67,183) (5,039) 72,222 - 72,738 (72,739) (1) 77,778

Balance Sheet - ROU AssetBalance Sheet - Lease Liability

Lease Modification - Additional ROU Asset Not Accounted for as a Separate ContractTotal Sq Footage Sq Footage Lease Alloc Payment

Payments Component 1 Component 2 Payment Component 2

1 100,000 10,000 77,778 22,222

2 150,000 10,000 10,000 77,778 72,222

3 150,000 10,000 10,000 77,778 72,222

4 150,000 10,000 10,000 77,778 72,222

5 150,000 10,000 10,000 77,778 72,222

700,000 50,000 40,000

55.6% 44.4%

388,889 311,111 LEASE COST: 77,778 77,778


EXAMPLE 18: MODIFICATION DECREASING THE SCOPE OF THE LEASE (842-10-55-177 through 55-185)



Case A – Remeasuring the Right-of-Use Asset Based on Change in Lease Liability

The difference between the premodification liability and the modified lease liability is $284,669 ($590,767 – $306,098). That difference is 48.2 percent

($284,669 ÷ $590,767) of the premodification lease liability. The decrease in the lease liability reflects the early termination of the right to use 5,000 square

feet of space (50 percent of the original leased space), the change in the lease payments, and the change in the discount rate.

Lessee decreases the carrying amount of the right-of-use asset to reflect the partial termination of the lease based on the adjustment to the carrying

amount of the lease liability, with any difference recognized in profit or loss. The premodification right-of-use asset is $514,436. Therefore, at the effective

date of the modification, Lessee reduces the carrying amount of the right-of-use asset by $247,888 (48.2% × $514,436). Lessee recognizes the difference

between the adjustment to the lease liability and the adjustment to the right-of-use asset ($284,669 – $247,888 = $36,781) as a gain.

REDUCTION OF LIABILITY: 48.2% [1-(Mod/PreMod)]

P&L

Beginning

Balance

Liability

Accretion

Lease

Payment

Ending

Balance

Beginning

Balance

Asset

Reductio

n

Ending

Balance

Lease

Cost

1 (904,337) (54,260) 100,000 (858,598) 904,337 (71,519) 832,819 125,779

2 (858,598) (51,516) 105,000 (805,114) 832,819 (74,263) 758,556 125,779

3 (805,114) (48,307) 110,250 (743,170) 758,556 (77,472) 681,084 125,779

4 (743,170) (44,590) 115,763 (671,998) 681,084 (81,189) 599,895 125,779

5 (671,998) (40,320) 121,551 (590,767) 599,895 (85,459) 514,436 125,779

(590,767) 514,436

Adj 1 284,669 (247,887)

6 (306,098) (21,427) 68,000 (259,525) 266,549 (45,812) 220,737 67,239

7 (259,525) (18,167) 71,400 (206,292) 220,737 (49,072) 171,665 67,239

8 (206,292) (14,440) 74,970 (145,762) 171,665 (52,798) 118,867 67,239

9 (145,762) (10,203) 78,719 (77,247) 118,867 (57,035) 61,831 67,239

10 (77,247) (5,407) 82,654 - 61,831 (61,831) (0) 67,239


Total Lease Cost 928,306

Recognized Cost (628,895)

Recognized G/L 36,782

Remaining cost 336,194

Periodic cost 67,239

DR CR

Lease Liability 284,669

ROU Asset 247,887

G/L on Mod. 36,782



Case B – Remeasuring the Right-of-Use Asset Based on Remaining Right of Use

Lessee determines the proportionate decrease in the carrying amount of the right-of-use asset based on the remaining right-of-use asset (that is, 5,000

square feet corresponding to 50 percent of the original right-of-use asset).

Fifty percent of the premodification right-of-use asset is $257,218 (50% x $514,436). Fifty percent of the premodification lease liability is $295,384 (50% x

$590,767). Consequently, Lessee decreases the carrying amount of the right-of-use asset by $257,218 and the carrying amount of the lease liability by

$295,384. At the effective date of the modification, Lessee recognizes the difference between the decrease in the lease liability and the decrease in the right-

of-use asset of $38,166 ($295,384 − $257,218) as a gain.

REDUCTION OF LIABILITY: 50.0% [1 - (Reduced Space/PreMod Space)]

P&L

Beginning

Balance

Liability

Accretion

Lease

Payment

Ending

Balance

Beginning

Balance

Asset

Reduction

Ending

Balance

Lease

Cost

1 (904,337) (54,260) 100,000 (858,598) 904,337 (71,519) 832,819 125,779

2 (858,598) (51,516) 105,000 (805,114) 832,819 (74,263) 758,556 125,779

3 (805,114) (48,307) 110,250 (743,170) 758,556 (77,472) 681,084 125,779

4 (743,170) (44,590) 115,763 (671,998) 681,084 (81,189) 599,895 125,779

5 (671,998) (40,320) 121,551 (590,767) 599,895 (85,459) 514,436 125,779

(590,767) 514,436

Adj 1 295,384 (257,218)

Adj 2 (10,715) 10,715

6 (306,098) (21,427) 68,000 (259,525) 267,932 (46,089) 221,844 67,515

7 (259,525) (18,167) 71,400 (206,292) 221,844 (49,349) 172,495 67,515

8 (206,292) (14,440) 74,970 (145,762) 172,495 (53,075) 119,420 67,515

9 (145,762) (10,203) 78,719 (77,247) 119,420 (57,312) 62,108 67,515

10 (77,247) (5,407) 82,654 - 62,108 (62,108) (0) 67,515

Balance Sheet - Lease Liability Balance Sheet - ROU Asset Total Lease Cost 928,306

Recognized Cost (628,895)

Recognized G/L 38,166

Remaining cost 337,577

Periodic cost 67,515

DR CR


ROU Asset 257,218

G/L on Mod. 38,166


ROU Asset 10,715


EXAMPLE 19: MODIFICATION CHANGING THE CONSIDERATION IN CONTRACT (842-10-55-186 through 55-189)



Lease Modification - Consideration Has Changed in the Contract

P&L

Beginning

Balance

Liability

Accretio

n

Lease

Paymen

t

Ending

Balance

Beginning

Balance

Asset

Reduction

Ending

Balance

Lease

Cost

(728,811) 728,811

IDCs -

Incentive -

1 (728,811) (43,729) 95,000 (677,540) 728,811 (55,771) 673,040 99,500

2 (677,540) (40,652) 96,000 (622,192) 673,040 (58,848) 614,192 99,500

3 (622,192) (37,332) 97,000 (562,524) 614,192 (62,168) 552,024 99,500

4 (562,524) (33,751) 98,000 (498,275) 552,024 (65,749) 486,275 99,500

5 (498,275) (29,897) 99,000 (429,172) 486,275 (69,603) 416,672 99,500

Lease liability adjustment: 40,207 (40,207)

Post-modification balance: (388,965) 376,465

6 (388,965) (27,228) 93,000 (323,193) 376,465 (65,272) 311,193 92,500

7 (323,193) (22,623) 94,000 (251,816) 311,193 (69,877) 241,316 92,500

8 (251,816) (17,627) 95,000 (174,443) 241,316 (74,873) 166,443 92,500

9 (174,443) (12,211) 96,000 (90,654) 166,443 (80,289) 86,154 92,500

10 (90,654) (6,346) 97,000 0 86,154 (86,154) (0) 92,500

Balance Sheet - Lease Liability Balance Sheet - ROU AssetContract Modified - Lease Term Changes

YR PV Payment Discount PV Payments

7.000%

6 1 93,000 86,916

7 2 94,000 82,103

8 3 95,000 77,548

9 4 96,000 73,238

10 5 97,000 69,160

Payments 475,000 PV 388,965

Total Payments 960,000

Prior Lease Cost (497,500)

Remaining Cost 462,500

Period Cost 92,500


Reminders

• May webinar topic: Popular Demand• Voted on in real-time during the exit survey• Slated for May 13, 2020

• A recording of today’s webinar will be emailed within a week

• Release 28 is this month• Features: return to current tab and discount

rate matching• Stage release was April 9 (last Thursday)• Production release will be April 23 (target)• Support Center has full release notes

• Always consult with your Auditors on questions related to leases

Action Items

Download today’s presentation

Complete today’s post-webinar exit survey (Thank you in advance for your time and feedback!)

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Block calendar for May 13th webinar


Questions & Answers


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