Under FAS 13 accounting, executory costs (expenses such as insurance, taxes, and maintenance) that are billed by the lessor to the lessee are separated out from other rent before a capital lease's rent stream is capitalized. The proposed new standard calls for separating "service components" from the rest of the rent, if they are "distinct" (see exposure draft paragraphs 6 and B5-B8).
It's not clear, though, that "service components" aligns precisely with the old concept of "executory costs." While no doubt maintenance charges would qualify under each term, and probably insurance, what about taxes? Taxes aren't really a service (while one hopes that one gets services for taxes paid, the link is not direct, and failure to receive services is not a justification for not paying). Will this be clarified in the final standard?
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