Accounting for Leases 4

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Accounting for leases is regulated by the Financial Accounting Standards Board (FASB) in United States .Standards for accounting leases have been effective since 1977 (Accounting Standard Board, 2004). The primary standard for lease accounting is Statement of Financial Accounting Standards No. 13 (FAS 13).
According to FASB (1976), a lease is an agreement conveying the right to use property, plant, and equipment (PPE) usually for a stated period of time. Examples of assets that can be leased include land, buildings, and plant & equipment. FASB classified lease as an operating lease or a capital lease (finance lease). An operating lease is regularly for a shorter period of time and is a rental of the asset. Under an
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Furthermore, FASB wish to produce a common standard on lease accounting to have higher level of transparency and comparability to financial statements and to improve on the understanding of financial reporting (Altamuro, 2005).
The proposed new accounting standards treat all leases as capital leases. This will get rid of the difference between capital leases and operating leases (Nobes, 2004).FASB and IASB consider that when issuing a lease contract, a lessee has attained an asset through its right to use the asset and recognized a liability through its duty to pay rentals. Using the new standard, a lessee is required to record an asset on behalf of its right to use the leased item on an agreed term and a liability for its obligation to make pay rental fees.
As for primary measurement, it was cautiously decided that the lessee would record the asset at cost, which would equal the present value of the lease payments discounted at the lessee 's incremental borrowing rate. The obligation to make rent payments would be recorded at the present value of the lease payments, discounted at the lessee 's incremental borrowing rate (Ochoa, 2011).

After several meetings, the Boards decided to implement the performance obligation approach to lessor accounting where a lessor would identify an asset representing its right to receive rental payments and distinguish a liability representing its performance obligation under the lease (Elena, 2009). Revenue will not be
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