question archive Variable Rents—A Liability? Assume a company pays $10,000 per month plus 2% of sales ("a variable rent charge") to occupy a retail space in a mall
Variable Rents—A Liability? Assume a company pays $10,000 per month plus 2% of sales ("a variable rent charge") to occupy a retail space in a mall
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Variable Rents—A Liability? Assume a company pays $10,000 per month plus 2% of sales ("a variable rent charge") to occupy a retail space in a mall. The lease agreement has a 3-year noncancelable term. Based on prior history in that location, the company estimates that its variable rent charge will amount to approximately $1,000 per month.
a. Using the Conceptual Framework, evaluate whether this variable rent change meets the definition of a liability.
b. Next, locate discussion in the Basis for Conclusions of ASU 2016-02 (Leases) and describe how the FASB considered this issue of whether variable rents should be included in the lease liability recognized by companies. Describe some of the history of this issue—did the Board always hold the view that variable rents should/should not be included in companies' lease obligations?
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