The Current Lease Standard, Leases, And Lease Liabilities

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As you are aware on February 26, 2016, the FASB issued standard No. 2016-02, Leases (Topic 842) to the current lease standard. Under the new standard, leases with terms of greater than 12 months be shown as a right-of-use lease asset and a leased liability on the balance sheet. The key disparity between preceding Generally Accepted Accounting Principles (“GAAP”) and Topic 842 is that the lessee should recognize right-of-use leases as assets and lease liabilities, for those leases that have a and were previously classified as operating leases. The central principle of the new update propels is recognition of all leases as assets and liabilities that stem from leases. With respect to FASB Concepts Statement No. 6, Elements of
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Topic 842 will require the estimation of lease terms and subsequent lease payments by companies under a criteria that cautiously take into consideration, in addition to written lease arrangements, the “economic incentives for a company to exercise an option to extend a lease term or for an entity not to exercise an option to terminate a lease”. With respect to finance leases only, the lease payments will subsequently be discounted using the company’s incremental borrowing rate to reach the lease obligation. This lease obligation will then be disclosed as a liability with an offsetting disclosure of the right to use asset as an intangible asset on the balance sheet. The amount of the right-to-use asset will also include any direct cost related to the negotiation of the lease and payment by the company. With respect to capital leases, the lessee is required to separate the interest on the lease liability and the amortized right-to-use assets on the statement of comprehensive income. The payment of interest on the lease liability and lease payments are recorded in the operating activities of the statement of cash flows. The principal portion of the lease payment will be recorded within the financing activities section of the statement of cash flows. Disclosure According to the new standards, “Users of financial statements must be able to assess the amount, timing, and uncertainty of cash flows arising from
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