Financial Accounting Research
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- Date Submitted: 05/10/2010 09:01 AM
- Pages: 4
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Introduction
The memo addresses the issue faced by a client of establishing a relationship with a new customer. The deal with the new customer has great potential for future growth. The new customer has offered to the client an opportunity requiring the use of 120 trailers; which are 20 trailers more than what is presently owned by the trucking company. For this purpose, the issues in the Financial Accounting Research System (FARS) in relation to the leases and lease structures have been explained in brief. FARS is a software package which is just like an accounting tool that helps to resolve the accounting issues. Financial Accounting Standards Board (FASB) has developed this software.
Issues
Criteria for the sale lease back accounting
There are special criteria for the sale lease back accounting. The sale-leaseback accounting shall be used by a seller-lessee only if a sale-leaseback transaction includes all of the following (Summary of Statement No. 98):
a. A normal leaseback (as described in paragraph 8)
b. The terms and provisions of payment that properly and sufficiently establish the buyer-lessor’s initial and upholding investment in the property.
c. The terms and provisions of payment that carry-over all of the other risks and rewards of ownership as demonstrated by the absence of any other continuing involvement by the seller-lessee.
A normal leaseback is the relationship between the lessee and lesser involving the active use of the property by the seller and lessee in consideration for payment of rent, taking in the contingent rentals that are based on the future operations of the seller-lessee and leaves out the other continuing involvement provisions explained in this Statement (Summary of Statement No. 98).
Capital Lease Criteria (Accounting Study Guide, 2008)
The following aspects cover the capital lease criteria:
• There should be a transfer of the ownership of the property to the lessee at the end of the lease term.
• It...
The memo addresses the issue faced by a client of establishing a relationship with a new customer. The deal with the new customer has great potential for future growth. The new customer has offered to the client an opportunity requiring the use of 120 trailers; which are 20 trailers more than what is presently owned by the trucking company. For this purpose, the issues in the Financial Accounting Research System (FARS) in relation to the leases and lease structures have been explained in brief. FARS is a software package which is just like an accounting tool that helps to resolve the accounting issues. Financial Accounting Standards Board (FASB) has developed this software.
Issues
Criteria for the sale lease back accounting
There are special criteria for the sale lease back accounting. The sale-leaseback accounting shall be used by a seller-lessee only if a sale-leaseback transaction includes all of the following (Summary of Statement No. 98):
a. A normal leaseback (as described in paragraph 8)
b. The terms and provisions of payment that properly and sufficiently establish the buyer-lessor’s initial and upholding investment in the property.
c. The terms and provisions of payment that carry-over all of the other risks and rewards of ownership as demonstrated by the absence of any other continuing involvement by the seller-lessee.
A normal leaseback is the relationship between the lessee and lesser involving the active use of the property by the seller and lessee in consideration for payment of rent, taking in the contingent rentals that are based on the future operations of the seller-lessee and leaves out the other continuing involvement provisions explained in this Statement (Summary of Statement No. 98).
Capital Lease Criteria (Accounting Study Guide, 2008)
The following aspects cover the capital lease criteria:
• There should be a transfer of the ownership of the property to the lessee at the end of the lease term.
• It...