■ FINANCIAL WAT CH Th e consideration in the contract is allocated between the lease and non-lease components of a contract as shown in Figure 5. Lessors must consider all infor-mation that is reasonably available when estimating a stand-alone selling price—e.g., market conditions, entity-specifi c factors and information about the lessee. Lessors also must maximize the use of observable inputs and apply consistent methods to estimate the stand-alone selling price of compo-nents with similar characteristics. Example Lessee and Lessor enter into a 2.5-year lease of offi ce equipment that includes maintenance services for the equip-ment throughout the contract term. Lessee will make annual payments of $400. Lessor normally leases the same equipment for $375 per year and of-fers a maintenance contract for $50 per year. Topic 842 requires Lessor to allo-cate the consideration in the contract to the lease and non-lease components based on their relative standalone sell-ing prices, as shown in Figure 6. ■ Takeaways from the 2016 Lease & T BY J O H N B O B E R he ELFA Lease & Finance Accountants Conference, held in Baltimore in September, took on added signifi cance this year due to the issuance earlier in the year of the new lease accounting standards by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB). Th e conference focused on the new standards and broke them down into subtopics, which provided attendees with an in-depth understanding of the new rules as well as the open questions around those rules. ● ● the Some of the topics discussed in the breakout sessions included: ● ● the criteria for distinguishing between leases and service contracts; ● ● the impact of the new standards on build to suit transactions; ● ● the classifi cation and measurement systems in the standards; ● ● separation of lessee payments into lease and non lease components (a very new concept); ● ● changes to existing lessor accounting models; impact of the new rules for captive and vendor fi nance companies; and ● ● eff orts involved during the transition to the new standards. Th e lease accounting changes received the most attention during the conference, but the agenda was not limited to this one subject. Th ere were sessions on the state of the industry, residual impairments and lease pricing. We were also treated to a talk by Kevin Kallaugher, the editorial cartoonist for the Economist and Baltimore Sun . His cartoons have frequently appeared on the Economist ’s cover, and his insights into the creative process were greatly appreciated by the audience. Pity the sessions that immediately followed! 46 NOVEMBER/DECEMBER 2016 EQUIPMENT LEASING & FINANCE MAGAZINE