Under the new standard, lessor accounting is largely unchanged from previous GAAP, other than certain changes were made to conform with the new lessee accounting model and Revenue from Contracts with Customers (Topic 606). Extensive qualitative and quantitative disclosures will be required. Co-mingling of financing and operating leases is not permitted. The leases are to be presented separately or combined with the appropriate class of assets and liabilities.The lease liability is to be reassessed each period for significant changes which are generally recorded as an adjustment to the ROU asset.The ROU is to be evaluated for impairment in accordance with professional standards.Payments are classified as operating activities in the statement of cash flows.The amortization of the ROU asset will be the difference between the periodic lease cost and the interest on the lease liability. Reflect a single lease cost on the income statement comprised of both interest on the lease liability and the amortization of the ROU asset.Interest and variable lease payments are classified as operating activities and principal repayments are classified as financing activities in the statement of cash flows.įor operating leases (most property leases).Record the interest expense on the lease liability on the income statement separately from the amortization of the ROU asset.Record the amortization of the ROU asset to the income statement.Record a right of use (ROU) asset and lease liability on the balance sheet, measured at the present value of lease payments over the lease term.At the inception of the lease, the lessee is required to determine whether the lease is a finance or operating lease and record the following: For finance leases (most equipment, auto, and other than property leases) The new standard applies to leases other than short term leases. ROU stands for Right of Use in accounting, and has considerable activity within the new lease accounting standards. This change is an important one that could significantly impact loan covenants, bonus plans and other agreements, and could surprise unprepared investors, lenders and other stakeholders. Under this new guidance, lessees now need to recognize lease assets and lease liabilities for those leases classified as operating leases under previous Generally Accepted Accounting Principles (GAAP). Pathway Forensics Cybersecurity & Digital ForensicsĪfter a decade in the making, on February 25, 2016, the Financial Accounting Standards Board (FASB) issued its controversial lease accounting guidance in Accounting Standards Update (ASU) No.B&V Capital Advisors Mergers - Acquisitions - Corporate Sales.Cybersecurity, Digital Forensics, and eDiscovery.
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