Accounting for leases

Existing lease accounting standards require lessees to classify their lease contracts as either finance or operating leases. If a lease is classified as a finance lease, assets (and liabilities) are recognized in its statement of financial position. For an operating lease, the lessee simply recognizes lease payments as an expense over the lease term. This split into finance and operating leases has given rise to a number of problems. The International Accounting Standards Board (IASB) and the…

Introduction For many years, the U.S. Financial Accounting Standards Board, FASB, and the International Accounting Standards Board, IASB, have simultaneously worked to find a common standard for lease accounting. The FASB and IASB are committed to bringing all leases onto the balance sheet, much to the dismay of many businesses. After years of deliberation, because of the complexity of the issue, the FASB and IASB have finally broken ground in altering the way leases are accounted for in company financial…

they can lease it. Lease arrangements give the lessee access to the assets for long enough time and in return they need to make periodic payments to the lessor. The main advantage of leasing is to acquire the necessary equipment or assets, use that assets to generate revenue but without tying up a big amount of cash upfront. International Accounting Standard Board (IASB) introduced new guidelines for accounting and disclosure requirements of leases. IFRS 16 Leases will replace IAS 17 Leases, and related…

Case Studies SOLUTIONS Case: Accounting for Lease Extension (Revised and updated 5/2013) Jack leases an office building from Jill. The lease is classified as an operating lease under the guidance of ASC Topic 840, Leases. The lease does not include any renewal options upon the expiration, but Jack is in the process of negotiating an extension of the lease. Jack proposes to make a single up-front payment of $1.2 million to Jill in exchange for an extension of the lease at the current rate for another…

Sable sells and leases equipment to its customers. * Sable entered into a contract with Buildit Co. leasing a bulldozer for construction. * The lease term is 10 years and the economic and useful life of the bulldozer is 15 years. * Annual lease payments due at the end of every year will be $16,000. * Buildit is responsible for maintenance, insurance, and tax payments arising from the lease. * The residual value of the bulldozer at the end of the lease term is estimated…

THE LEASE. GIVE REASONS FOR YOUR ANSWER. Both Purple Ltd and Lemon Ltd should classify the lease as a finance lease based on the below. Present value of all future lease payments = ($8,000 – $1,000) X 3.8897 = $27,228 Present value of guaranteed residual value = 50% X 7,200 X 0.6499 Total present value = $27,228 + $2,340 of the Bulldozer The present value of the minimum lease payments is substantially all of the fair value of the leased asset at the inception of the lease.…

stfx university | Accounting For Leases | Capital Vs. Operating Leases | | 200906027 | 11/16/2010 | This paper will outline the differences in accounting treatment of and criteria for determining whether leases should be accounted for as either a capital lease or an operating lease. I will be limiting my discussion to the accounting treatment of leases by the lessee. This paper will discuss the current accounting treatment for the two types of leases according to Canadian GAAP and…

2001 American Accounting Association Accounting Horizons Vol. 15 No. 3 September 2001 pp. 299–310 COMMENTARY Lease Accounting Research and the G4+1 Proposal Robert C. Lipe Robert C. Lipe is an Associate Professor at the University of Oklahoma. INTRODUCTION The Group of Four Plus One, or G4+1 for short, is a cooperative effort by national accounting standard setters from Australia, Canada, New Zealand, the United Kingdom, and the United States plus the International Accounting Standards Committee…

ACCT 3303 | CAPITAL LEASE vs. OPERATING LEASE | | Dr. Serge Ryno ACCT 3303 December 2, 2011 Capital Lease vs. Operating Lease Firms often choose to lease long-term assets rather than buy them for a variety of reasons including the tax benefits that are greater to the lessor than the lessees and leases offer more flexibility in terms of adjusting to changes in technology and capacity needs. Lease payments create the same kind of obligation that interest payments on debt create, and…

Introduction 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…