Plugged In Linda Cavanaugh CPA

By: Linda Cavanaugh, CPA EITF 08-03 is effective for fiscal years beginning after December 15, 2008 and any changes are to be reflected as an adjustment to opening retained earnings.

Under certain equipment lease agreements, a lessee is responsible for the repair and maintenance of the leased asset. The lease agreement may stipulate that the lessee is to make deposits with the lessor to protect the lessor if the lessee does not properly maintain the asset. The lessor then reimburses the lessee for any repairs or maintenance performed on the asset up to the amount of the deposit. At the end of the lease term, any deposit left may or may not be returned to the lessee depending on the contract terms.

This EITF applies to arrangements accounted for as a lease that has maintenance deposits that are refunded only if the lessee performs specified maintenance activities. Payments to a lessor that are not substantively and contractually related to maintenance of the leased asset are not within the scope of EITF 08-03.

Per paragraph 8 of EITF 08-03, maintenance deposits should be recognized as deposit assets and periodically evaluated as to whether it is probable that the deposit will be returned either through maintenance activities or at the end of the lease term. If it is less than probable that a part or all of the deposit will be returned, then the asset (or a part thereof) should be written off to expense. Any reimbursements of maintenance costs are to be recorded as maintenance expense or capitalized in accordance with the lessee’s accounting policy.

This one was short and sweet, which is how I like them.