Description
Many companies use leases to acquire higher priced assets. Leasing is an important activity for many entities. Presently some leases are capitalized and some are treated as operating leases. Opponents of this method criticize the accounting treatment because the present models do not meet the needs of users of financial statements because they do not always provide a faithful representation of leasing transactions. One reason is that operating leases are not capitalized. The International Accounting Board has issued a Proposed Accounting Standards Update (Links to an external site.) (topic 842) which proposes significate changes to lease accounting.
Write a five- to seven-page paper, formatted according to APA style (Links to an external site.). Your paper should also cite five of the research links below and include an in text citation, a quote from the article. Section heading titles should be centered and in bold.
Address the following questions:
- Introduction
- Explain the present rules for evaluating a lease and whether it is capitalized or not.
- Explain the new lease accounting rules.
- What affect will these new rules have on the balance sheet, the income statement and the cash flow statement?
- What industries would be affected more than others?
- Explain the proposed new Type A and B lease and the differences.
- Explain the effects of the proposed lease standards would have on the following:
- Presentation on the financial statements.
- How assets and liabilities would be computed.
- The effect to lease expense due to “Front Loading.”
- Interest charges.
- Year-end reporting.
- Financial disclosure notes.
- Income taxes.
- Conclusion
The following links can be used for your research:
FASB Issues Lease Rules; Will Have Big Balance Sheet Impacts: http://www.bna.com/fasb-issues-lease-n57982067931/ (Links to an external site.)
FASB, IASB Revised Proposals Would Cause Significant Lease Accounting Changes: http://www.bna.com/fasb-iasb-revised-n17179874062/ (Links to an external site.)
New Accounting Proposal on Leasing Portends Big Changes: http://dealbook.nytimes.com/2013/05/16/significant-changes-proposed-in-lease-accounting/ (Links to an external site.)
Leases: Final Approach or Go-around?: https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/leases-final-approach-or-go-around.pdf (Links to an external site.)
New Lease Standards May Demand Two Sets of Books: http://ww2.cfo.com/gaap-ifrs/2016/01/new-lease-standards-may-demand-two-sets-books/ (Links to an external site.)
New Accounting Standards Will Affect Lease Reporting: http://www.truckinginfo.com/article/story/2015/12/new-accounting-standards-will-affect-lease-reporting.aspx (Links to an external site.)
Congress of the United States: https://www.reit.com/sites/default/files/media/Files/Policy/Letter-to-FASB-re-Lease-Accounting-5-17-12.pdf (Links to an external site.)
Proposed Lease Standard Facing Congressional Opposition: http://www.schneiderdowns.com/proposed-lease-standard-facing-congressional-opposition (Links to an external site.)
All Systems Go for FASB Lease Accounting Overhaul: http://www.accountingweb.com/aa/standards/all-systems-go-for-fasb-lease-accounting-overhaul (Links to an external site.)
In depth: The leasing standard - A comprehensive look at the new model and its impact: http://www.pwc.com/us/en/cfodirect/publications/in-depth/fasb-lease-accounting-model-asc-842.html (Links to an external site.)
IASB issues leases standard; FASB to follow: http://www.cgma.org/magazine/news/pages/iasb-issues-leases-standard-201613694.aspx?TestCookiesEnabled=redirect (Links to an external site.)
FASB Lease Accounting: http://proleasesoftware.com/integrated-modules/lease-module/fasb-lease-accounting/?gclid=CJH-3PWTvMsCFUI6gQod4AcOag (Links to an external site.)
New lease Accounting Standards are coming. Will you be ready?: http://www.visuallease.com/fasb?gclid=CLvf0rKUvMsCFU0vgQodpbsLXg (Links to an external site.)
New FASB Lease Standard Could Inflate Balance Sheets: http://ww2.cfo.com/accounting-tax/2016/02/new-fasb-lease-standard-inflate-balance-sheets/ (Links to an external site.)
The Final Paper
- Must be five to seven double-spaced pages in length, excluding the title page and reference page and formatted according to APA style
- Must include a title page with the following:
- Title of paper
- Student’s name
- Course name and number
- Instructor’s name
- Date submitted
- Your paper should cite five of the research links above and include an in text citation, a quote from the article.
- Must use at least five scholarly sources listed above. Be sure to integrate your research (Links to an external site.) rather than simply insert it.
- Must document all sources in APA style and here (Links to an external site.) and here (Links to an external site.).
- Must include a separate reference page, formatted according to APA style
Explanation & Answer
Attached.
Running head: COMPANY LEASES
1
Company Leases
Name
Institutional Affiliation
COMPANY LEASES
2
Company Leases
Introduction
A lease is a contract for a specific period between a property owner and a tenant. The
contract defines the responsibilities and rights of the persons involved in the contract. Leasing
is a common phenomenon in the contemporary forms of property ownership. Many
companies prefer leasing owing to its flexible terms and transfer of risks. However, there is
contention on the differences between the capitalized and operating leases. That calls for the
understanding of the two terms based on the stipulations by the Financial Accounting
Standards Board and their convenience to companies.
According to Morais (2013), operational leasing is the most common method since it
proves convenient owing to many advantages over capitalized leases. Operational leases are
not included in the balance sheets since they involve renting out of the property. On the other
hand, a capital lease is more of a loan to the lessee. That means that the lessee owns the asset.
The assets in capitalized leases are, therefore, included in the balance sheets. The accounting
methods for the two types of leases vary owing to their difference in impacts on tax. The
paper, therefore, explores the two types of accounting methods, the current and the proposed
principles of accounting and their various impacts on taxes, interest rates and presentation of
financial documents among other factors.
Present Lease Rules
Current evaluation rules of a lease are more specific when it comes to the balance
sheet. The evaluations rules are operational owing to their features. The present evaluation
rules for all types of leases stipulate that a lease contract exists if there is a party that has
control over property, which permits physical access. Lease evaluation, therefore, involves
reviewing any contractual agreements to determine whether they contain some elements of
the lease. Under such clause, a supplier has no rights to substitute a...