Leasing Transactions
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- Date Submitted: 03/17/2014 04:10 PM
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Current Event Paper
For this week’s current event review, team B choose an article in the “Financial Executives International” website titled “The Times They are A-Changing for Leasing Transactions”. The review of this article will initially start with a summary of the article, followed by a review of capital versus operating lease treatment and then conclude with review of lease terms.
Summary of the article
The article summarizes the effects of a new proposed accounting standard for lessee and lessor. The article states that more companies are lessees rather than lessor. Therefore, the article focuses on how the lessees will be affected by the passage of the proposed amendments to Statement of Financial Accounting Standards (SFAS) #13. Because of the response to the exposure draft issued in 2010, the Financial Accounting Standards Board (FASB) announced plans to revise the exposure draft (Meyer, 2013).
The proposed changes are an attempt to converge FASB and International Accounting Standards Board (IASB). One of the changes involves treating all leases as capital leases unless the duration of an operating lease is less than 12 months. Leases that involve land will be considered capital leases. The purpose of recording leased assets is to show the right-of-use assets and their accompanying obligations. Additionally, the leased asset is amortized on the basis of the lease terms and not the economic life of the asset. This shows the lessee has the right of use for that asset. Leases that involve land will be considered capital leases. Another change is the definition of the lease term. The proposed definition will include any renewal period options that are “more likely than not” to be exercised. Concerning contingent rentals, the FASB is expected to exclude these arrangements from the next exposure draft (Meyer, 2013).
Furthermore leases, in relationship to land, are outlines in the article based on Generally Accepted Accounting Principles (GAAP), ruling...
For this week’s current event review, team B choose an article in the “Financial Executives International” website titled “The Times They are A-Changing for Leasing Transactions”. The review of this article will initially start with a summary of the article, followed by a review of capital versus operating lease treatment and then conclude with review of lease terms.
Summary of the article
The article summarizes the effects of a new proposed accounting standard for lessee and lessor. The article states that more companies are lessees rather than lessor. Therefore, the article focuses on how the lessees will be affected by the passage of the proposed amendments to Statement of Financial Accounting Standards (SFAS) #13. Because of the response to the exposure draft issued in 2010, the Financial Accounting Standards Board (FASB) announced plans to revise the exposure draft (Meyer, 2013).
The proposed changes are an attempt to converge FASB and International Accounting Standards Board (IASB). One of the changes involves treating all leases as capital leases unless the duration of an operating lease is less than 12 months. Leases that involve land will be considered capital leases. The purpose of recording leased assets is to show the right-of-use assets and their accompanying obligations. Additionally, the leased asset is amortized on the basis of the lease terms and not the economic life of the asset. This shows the lessee has the right of use for that asset. Leases that involve land will be considered capital leases. Another change is the definition of the lease term. The proposed definition will include any renewal period options that are “more likely than not” to be exercised. Concerning contingent rentals, the FASB is expected to exclude these arrangements from the next exposure draft (Meyer, 2013).
Furthermore leases, in relationship to land, are outlines in the article based on Generally Accepted Accounting Principles (GAAP), ruling...