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The Why Behind Split Amortization Schedules for ASC 842

The Why Behind Split Amortization Schedules for ASC 842

When working with leases under ASC 842, many accountants prefer to split lease amortization schedules into separate components. Why?  

The primary lease accounting schedule is for the right-of-use asset, or ROU asset, itself. You may want other schedules to track separate components like tenant improvement allowance (TIA), purchase accounting adjustments, or cease-use adjustments. 

At the end of the fiscal year when the company’s tax accountants ask to see the portion of the amortization schedules that relates to separate components, no extra work needs to be done. Just run a system report showing those amounts. 

Does my company really need a split

amortization schedule?  

Yes, you really do. Here’s an example that shows you why:  

A company leases space for $10,000 a month. The company signed the lease after the lessor agreed to a $100,000 TIA. ASC 842 rules require the TIA to be included as part of the ROU asset and to be amortized over the term of the lease.  

At the end of each year, the company’s tax team asks the lease accounting team for the amount of that $100,000 TIA that is currently part of the ROU asset. If the TIA is built directly into the amortization schedule and the leasing software only allows one amortization schedule per record, the accountants will need to manually create a schedule recreating the amortization of the TIA to figure out which portion of the amortization activity and ROU asset balance is related to the TIA.  

And didn’t you get a leasing software to put an end to the manual work?  

You deserve better lease accounting split amortization schedule functionality 

Truly automated lease accounting software provides the ability to split amortization schedules into as many schedules as needed. There could be one for TIA, one for purchase accounting adjustments, and one for cease-use adjustments.  

At the end of the year when company tax accountants ask to see the portion of the amortization schedules that relates to separate components, no extra work needs to be done. The Tax team can be granted access to the system to instantly run a report showing those amounts. 

If you want to learn more about lease accounting software that does the hard part for you, reach out today.  

 

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