Differences Between ASC 840 and ASC 842: Fair Value Adjustment



George Azih:

See the fair value. If your present value of your minimum week’s payments exceeds the fair value of the asset, per 840 you’re supposed to increase your interest rate which has the effect of reducing your liability and as such the asset. You’re supposed to increase the interest rate which effectively reduces your liability and asset. Essentially under current gap, under 840, you cannot record an asset that is greater than the fair value under 840. Under 842 you do not make that change. You actually record the asset at the present value of the lease payments at that high value, and then you immediately impair it, right? Under 840, no impairment, you just change your rate. Under 842, you record it and immediately impair the asset.