Accounting and Financial Reporting – Current Developments
156
I. Changes Coming To Lease Accounting
The FASB's lease accounting project has nine lives and has survived two exposure drafts while
headed toward final passage. As of early 2015, the FASB is putting the finishing touches on a
new lease standard that, when passed, will make dramatic changes to the way companies
account for lease transactions. In particular, most leases will be capitalized, resulting in billions
of dollars of assets and liabilities being recorded on company balance sheets.
Although the lease accounting project has gone through numerous changes, the fundamental
concept that leases be capitalized is not going to change in the final document.
In this section, the author discusses the general concepts that are included in the most recent
lease exposure draft, with modifications that have been proposed by the FASB through their
ongoing deliberations.
Background
Under current GAAP, ASC 840, Leases (formerly FASB No. 13), divides leases into two
categories: operating and capital leases. Capital leases are capitalized while operating leases
are not. In order for a lease to qualify as a capital lease, one of four criteria must be met:
1. The present value of the minimum lease payments must equal or exceed 90% or more of
the fair value of the asset.
2. The lease term must be at least 75% of the remaining useful life of the leased asset.
3. There is a bargain purchase at the end of the lease.
4. There is a transfer of ownership.
In practice, it is common for lessees to structure leases to ensure they do not qualify as capital
leases, thereby removing both the leased asset and obligation from the lessee’s balance sheet.
This approach is typically used by restaurants, retailers, and other multiple-store facilities.
Consider the following example:
Facts:
Lease 1: The present value of minimum lease payments is 89% and the lease term is 74% of
the remaining useful life of the asset.
Lease 2: The present value of minimum lease payments is 90% or the lease term is 75% of the
remaining useful life of the asset.
Accounting and Financial Reporting – Current Developments
157
Conclusion: There is a one percent difference between Lease 1 and Lease 2. Lease 1 is an
operating lease not capitalized, while Lease 2 is a capital lease under which both the asset and
lease obligation are capitalized.
SEC pushes toward changes in lease accounting
In its report entitled Report and Recommendations Pursuant to Section 401(c.) of the
Sarbanes-Oxley Act of 2002 On Arrangements with Off-Balance Sheet Implications, Special
Purpose Entities, and Transparency of Filings by Issuer, the SEC targeted lease accounting as
one of the areas that results in significant liabilities being off-balance sheet.
According to the SEC Report that focused on U.S. public companies and a U.S. Chamber of
Commerce report:
a. 63 .
The New Lease Accounting Standard And You Whitepaperjtagliente
If you are not aware of the impact that the new FASB 13 rules being introduced this year will have on your company then you must read this. It is startling!
Banking Industry Whitepaper: Implications of the Lease Accounting Changesjmeedzan
Banking Industry Whitepaper: This whitepaper presents the most important elements and implications of the Revised FASB and IASB Lease Accounting Change Exposure Draft at a high level to provide the reader with a basic understanding of the proposed lease accounting changes and the potential impact to banks as both a lender and a lessee. In the introductory pages we will review the background and details around the proposed changes to give the reader a historical recap over the past few years. We will then review how we see the proposed lease changes impacting the Banking industry.
McKonly & Asbury’s April webinar entitled, “Leasing: A New Standard is Finally Here” is hosted by Dan Sturm, Partner; Brett Bauer, Senior Manager; and Tim Showers, Supervisor. During this webinar, attendees will learn how ASC 842 differs from ASC 840; will see illustrative financial statements which highlight exactly what changes as a result of the new standard; and will gain an understanding of what they should be doing now to prepare.
For years, lease accounting has been criticized as a means of structuring off-balance sheet financing, particularly as it related to the airline industry. In response to this feedback, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) initiated a joint project to overhaul accounting for leases in 2008, which was one of the cornerstone projects of a path towards convergence.
The FASB issued an exposure draft in 2010, but it received such heavy criticism from multiple parties that it didn't issue the final standard until early 2016. Accounting Standards Update 2016-02, Leases (ASC Topic 842) may be cumbersome to implement as it affects all leases (i.e. property, equipment, copiers) with only a few, minor scope exceptions. It also removes any differences between leases of equipment and real estate that exist in today's U.S. generally accepted accounting principles (GAAP).
Lease accounting received an accounting overhaul with the recent release of the Financial Accounting Standards Board (FASB)'s Accounting Standards Update 2016-02 Leases (Topic 842). The new standard most significantly changes lessee accounting compared to existing US GAAP, but also has some targeted changes for lessor accounting. Overall, ASU 2016-02 seeks to improve transparency to the economics of lease transactions and bring lease accounting into line with other recently released accounting standards updates, such as the changes to Revenue from Contracts with Customers (Topic 606).
The New Lease Accounting Standard And You Whitepaperjtagliente
If you are not aware of the impact that the new FASB 13 rules being introduced this year will have on your company then you must read this. It is startling!
Banking Industry Whitepaper: Implications of the Lease Accounting Changesjmeedzan
Banking Industry Whitepaper: This whitepaper presents the most important elements and implications of the Revised FASB and IASB Lease Accounting Change Exposure Draft at a high level to provide the reader with a basic understanding of the proposed lease accounting changes and the potential impact to banks as both a lender and a lessee. In the introductory pages we will review the background and details around the proposed changes to give the reader a historical recap over the past few years. We will then review how we see the proposed lease changes impacting the Banking industry.
McKonly & Asbury’s April webinar entitled, “Leasing: A New Standard is Finally Here” is hosted by Dan Sturm, Partner; Brett Bauer, Senior Manager; and Tim Showers, Supervisor. During this webinar, attendees will learn how ASC 842 differs from ASC 840; will see illustrative financial statements which highlight exactly what changes as a result of the new standard; and will gain an understanding of what they should be doing now to prepare.
For years, lease accounting has been criticized as a means of structuring off-balance sheet financing, particularly as it related to the airline industry. In response to this feedback, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) initiated a joint project to overhaul accounting for leases in 2008, which was one of the cornerstone projects of a path towards convergence.
The FASB issued an exposure draft in 2010, but it received such heavy criticism from multiple parties that it didn't issue the final standard until early 2016. Accounting Standards Update 2016-02, Leases (ASC Topic 842) may be cumbersome to implement as it affects all leases (i.e. property, equipment, copiers) with only a few, minor scope exceptions. It also removes any differences between leases of equipment and real estate that exist in today's U.S. generally accepted accounting principles (GAAP).
Lease accounting received an accounting overhaul with the recent release of the Financial Accounting Standards Board (FASB)'s Accounting Standards Update 2016-02 Leases (Topic 842). The new standard most significantly changes lessee accounting compared to existing US GAAP, but also has some targeted changes for lessor accounting. Overall, ASU 2016-02 seeks to improve transparency to the economics of lease transactions and bring lease accounting into line with other recently released accounting standards updates, such as the changes to Revenue from Contracts with Customers (Topic 606).
416Business firms generally acquire property rights in lon.docxgilbertkpeters11344
416
Business firms generally acquire property rights in long-term assets through
purchases that are funded by internal sources or by externally borrowed
funds. The accounting issues associated with the purchase of long-term
assets were discussed in Chapter 9. Leasing is an alternative means of
acquiring long-term assets to be used by business firms. Leases that are not
in-substance purchases provide for the right to use property by lessees, in
contrast to purchases that transfer property rights to the user of the long-
term asset. Lease terms generally obligate lessees to make a series of pay-
ments over a future period. As such, they are similar to long-term debt.
However, if a lease is structured in a certain way, it enables the lessee to
engage in off–balance sheet financing (discussed in Chapter 11) because cer-
tain leases are not recorded as long-term debt on the balance sheet. Busi-
ness managers frequently wish to use off–balance sheet financing in order
to improve the financial position of their companies. However, as noted
earlier in the text, efficient market research indicates that off–balance sheet
financing techniques are incorporated into user decision models in deter-
mining the value of a company.
Leasing has become a popular method of acquiring property because it
has the following advantages.
1. It offers 100 percent financing.
2. It offers protection against obsolescence.
3. It is frequently less costly than other forms of financing the cost of the
acquisition of fixed assets.
4. If the lease qualifies as an operating lease, it does not add debt to the
balance sheet.
CHAPTER
13
Leases
Introduction 417
Many long-term leases possess most of the attributes of long-term debt.
That is, they create an obligation for payment under an agreement that is
noncancelable. The adverse effects of debt are also present in leases in that
an inability to pay may result in insolvency. Consequently, even though
there are statutory limitations on lease obligations in bankruptcy proceed-
ings, these limits do not affect the probability of the adverse effects of non-
payment on asset values and credit standing in the event of nonpayment of
lease obligations. The statutory limitations involve only the evaluation of the
amount owed after insolvency proceedings have commenced.
Management’s choice between purchasing and leasing is a function of
strategic investment and capital structure objectives, the comparative costs of
purchases of assets versus leasing assets, the availability of tax benefits, and per-
ceived financial reporting advantages. The tax benefit advantage is a major fac-
tor in leasing decisions. From a macroeconomic standpoint, the tax benefits of
owning assets may be maximized by transferring them to the party in the higher
marginal tax bracket. Firms with lower effective tax rates may engage in more
leasing transactions than firms in higher tax brackets since the tax benefits are
passed on to the lessor. El-Gazzar et .
Finvision impact series 1 - ed leases - lessee accountingFinvision
IFRS accounting - Exposure draft on lease accounting has been released recently. The presentation gives an brief overview on the basic principles and how it may impact your organization
I. IntroductionSince the Enron sandal in 2001, Security Exchange C.docxsheronlewthwaite
I. Introduction
Since the Enron sandal in 2001, Security Exchange Commission (SEC has made closing loopholes it’s hope priority. The SEC realized that there was a loophole relating to leasing. In 2006, FASB began to work on a new lease accounting standard intended to close the loophole of off-balance operating leases. The FASB and IASB issued a Discussion Paper proposing that lessees capitalize all leases on the balance sheet was done in 2009. In 2010, the FASB and IASB issued an Exposure Draft and distribute it for public comments. The model set forth in the ED proposed that lessees move all leases onto the balance sheet as a right-of-use asset and liability.
By 2013, the FASB and IASB issued a Revised Exposure Draft and opened a four-month comment period. After, the boards solidified parts of the standard, including that all leases would be brought onto the balance sheet, expense recognition models, and liability measurement. In 2016, the FASB published ASC-842, the new lease accounting standard for companies reporting under US GAAP. The IASB issued IFRS 16 the new lease accounting standard for companies reporting under the International Financial Reporting Standards.
In 2018, the FASB issued an update to ASC 842 to both clarify and simplify the application of the new lease standard to land easements. The FASB also issued a proposal to ease companies’ transition to the new standard by offering a practical expedient that would allow companies to apply the transition provisions at the adoption date, instead of at the earliest comparative period. The proposal was approved in July of 2018.Objective of Research Project.
The objective of the Research Project is to describe some of the key differences of presenting and reporting Leasing in the Financial Statements under U.S. GAAP and IFRS. Organization of text.
This paper starts by presenting the guidance applicable to Inventory under US GAAP and IFRS, this section contains the specific reference in each case as well as an illustrative case, who serves as an example of the application of the referred guidance. This section is followed by a little of history. A summary of History of Convergence by each standard as well a history of convergence between them. After having a theoretical picture of the Accounting Standards that rule Inventory, I compare both, beginning with its similarities and then explaining each of the differences encountered. Finally, I talked about the expectation of greater convergence between IFRS and US GAAP, exposing its possible impact and the elements that impede the complete convergence between them. At the end, the conclusions of this paper.U.S. GAAP Accounting Standards for Presentation of Financial Statements.Standard
The primary US GAAP and SEC guidance applicable to leasing accounting is the ASC 842 Leasing.Illustrative Case.
A lessee shall either present in the statement of financial position or disclose in the notes all of the following:
a. Finance lease right-of-u ...
The Financial Accounting Standards Board has issued Accounting Standards Update No. 2016-
02, Leases (Topic 842), an Amendment of the FASB Accounting Standards Codification, which outlines changes in the way that lessors are required to report certain monies collected for leased assets. These new lease accounting standards – known as ASC 842 – will go into effect for public companies January 2019 and for private companies and not-for-profits January 2020.
These changes affect the several aspects of lease accounting documentation,Learn What This Means for Your Business
The Financial Accounting Standards Board establishes standards of financial accounting that govern the preparation of financial reports in the private sector. This presentation outlines those standards for leases.
The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be referred to the ICAPreferred to the ICAPreferred to the ICAPreferred to the ICAP referred to the ICAP referred to the ICAPreferred to the ICAP referred to the ICAP
Lease Accounting: Preparing Your Business for 2022Citrin Cooperman
Making a smooth transition to the new lease accounting standards and putting new practices in place for the future is a top priority for any business as they plan for 2022. During this webinar session, we reviewed how you can handle and prepare to navigate your business through the new lease accounting standards.
Topics included:
- What private companies should think about for 2022
- How the lease accounting standards can impact your financial
statements, financial covenants, and taxes
- Identifying opportunities for your business due to the new lease
accounting standards
In order to inform you of the upcoming changes in lease accounting and the impact on IFRS reporting for fleets, LeasePlan’s Head of Consultancy Matthew Walters answers the most important questions on this topic in the below Q&A.
Accounting for Leases
Unit-III
Leasing Environment:
A lease is a contractual agreement between a lessor and a lessee. This arrangement gives the lessee the right to use specific property, owned by the lessor, for a specified period of time. Lessee makes the payment to the lessor in return over the lease term for the use of the property.
The largest group of leased equipment involves Information technology, Transportation (trucks, motor cars), Construction and Agriculture.
Who are the Lessors? The lessors that own this property generally fall into one of following three categories:
1. Banks.
2. Captive leasing companies.
3. Independents.
Advantages of Leasing:
1. 100% financing at Fixed Rates: Leases are often signed without initial amount from the lessee. In addition, lease payments often remain fixed which protects the lessee against inflation and increases in the cost of money.
2. Protection against Obsolescence: Leasing equipmentreduces risk of obsolescence to the lessee, and in many cases passes the risk of residual value to the lessor.
3. Flexibility: Lease agreements may contain less restrictive provisions than other debt agreements. For example, the duration of the lease may be anything from short period of time to the entire expected economic life of the asset. The payment of rent in most cases is set to enable the lessor to recover the cost of the asset plus a fair return over the life of the lease.
4. Less Costly Financing: Some companies find leasing cheaper than other forms of financing. This may reduce the tax burden of the companies. Through leasing, the leasing companies or financial institutions use these tax benefits. They can pass some of these tax benefits back to the user of the asset in the form of lower rental payments.
5. Tax Advantages: For financial reporting purposes companies do not report an asset or a liability for the lease arrangement. For tax purposes, however, companies can capitalize and depreciate the leased assets.
6. Off-Balance-Sheet Financing: Some leases do not add debt on a balance sheet or affect financial ratios. But they may be added to borrowing capacity.
Accounting by the Lessee: Lessee capitalizes a lease; it records an asset and a liability generally equal to the present value of the rental payments. Lessor having transferred substantially all the benefits and risks of ownership recognizes a sale by removing the asset from the balance sheet and replacing it with a receivable.
Capitalization Criteria (Lessee): In order to record a lease as a capital lease, the lease must be non cancelable. In addition, it must meet one or more of the following four criteria.
1. Transfers ownership to the lessee.
2. Contains a bargain purchase option.
3. Lease term is equal to or greater than 75 percent of the estimated economic life of the leased property.
4. The present value of the minimum lease payments (excluding executor costs) equals .
Lease Accounting - The New Exposure DraftDecosimoCPAs
Decosimo Assurance Principal Robert Belcher presented "Leases - The New Exposure Draft" at the 2013 Decosimo Accounting Forum hosted by the University of North Alabama on July 19.
Your NamePractical ConnectionYour NameNOTE To insert a .docxnettletondevon
Your Name
Practical Connection
Your Name
NOTE: To insert a different Cover Page select the Insert tab from the Ribbon, then the cover page you want. Insert Your Name. Enter Your Industry and Phase below. You can use this template if you wish. Please erase this note before you submit.
Table of Contents
Phase 1: Educational and Employment History 2
Educational History and Goals (Include Certifications) 2
Employment History and Goals (Do NOT mention the name of the company you are writing about). 2
Phase 2: Telecommunications and Network Security Protocols implemented by your company (Fully describe 3 of the following components. Do NOT mention your company’s name, only the Industry) 2
Hosts and Nodes 2
IPv4 versus IPv6 2
Firewall 2
Virtual Private Network (VPN) 3
Proxy Servers 3
Network Address Translation (NAT) 3
Routers, Switches, and Bridges 3
The Domain Name System (DNS) 3
Intrusion Detection Systems and Intrusion Prevention Systems (IDS/IPS) 3
Network Access Control 3
Phase 3: As a Security Consultant and based on what you have learned in this course, how would you improve your company’s Telecommunications and Network Security Protocols? 3
Improvement 1 3
Improvement 2 3
Improvement 3 3
Bibliography 4
NOTE: To include a Word generated TOC select the References tab from the Ribbon, then Table of Contents. Select the format you wish. Remember, to use the built-in TOC you must use the MS Word “Styles” format from the Ribbon, specifically “Heading 1” for each phase heading, “Heading 2” for the phase sub-headings and “Normal” for the body.
Remember to update the TOC after adding any data to the body of the paper. To update the TOC simply click anywhere in the TOC, select Update Table, then select Update entire table and OK.
Please erase this note before you submit.Phase 1: Educational and Employment HistoryEducational History and Goals (Include Certifications)
Type Your Data Here.
NOTE: For each Phase you must have at least 2 references. Please use the References feature of Microsoft Word to manage your references.
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Place the cursor just before the period at the end of the sentence. Then select Insert Citation and select the correct reference from the list (Sewart, 2014).
Please erase this note before you submit.Employment History and Goals (Do NOT mention the name of the company you are writing about).
Type Your Data Here. Type Your Data Here. Type Your Data Here. Type Your Data Here. Type Your Data Here.Phase 2: Telecommunications and Network Security Protocols implemented by your company (Fully describe 3 of the following components. Do NOT mention your company’s name, only the Industry)Hosts and Nodes
Type Your Data Here. Type Your Data Here. Type Your Da.
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b. Methods:
Findings:
Conclusions
LETTERS
nature materials | VOL 3 | APRIL 2004 | www.nature.com/naturematerials 249
T issue engineering aims to replace, repair or regeneratetissue/organ function, by delivering signalling molecules andcells on a three-dimensional (3D) biomaterials scaffold that
supports cell infiltration and tissue organization1,2. To control cell
behaviour and ultimately induce structural and functional tissue
formation on surfaces, planar substrates have been patterned with
adhesion signals that mimic the spatial cues to guide cell attachment
and function3–5. The objective of this study is to create biochemical
channels in 3D hydrogel matrices for guided axonal growth. An agarose
hydrogel modified with a cysteine compound containing a sulphydryl
protecting group provides a photolabile substrate that can be
patterned with biochemical cues. In this transparent hydrogel we
immobilized the adhesive fibronectin peptide fragment, glycine–
arginine–glycine–aspartic acid–serine (GRGDS),in selected volumes of
the matrix using a focused laser.We verified in vitro the guidance effects
of GRGDS oligopeptide-modified channels on the 3D cell migration
and neurite outgrowth. This method for immobilizing biomolecules in
3D matrices can generally be applied to any optically clear hydrogel,
offering a solution to construct scaffolds with programmed spatial
features for tissue engineering applications.
Hydrogels have been widely studied as tissue scaffolds because they
are biocompatible and non-adhesive to cells, allowing cell adhesion
to be programmed in6–8. Current microfabrication methods for
3D hydrogel matrices with controlled intrinsic structure mainly
include photolithographic patterning9–11, microfluidic patterning12,
electrochemical deposition13 and 3D printing14. Notably, although these
layering techniques can conveniently shape the hydrogel on X–Y planes,
they have limited control over both the coherence of the layers along the
z direction and the local chemistry. Combining photolabile hydrogel
matrices with focused light provides the possibility of eliminating the
layering process and directly modifying the local physical or chemical
properties in 3D. This results in a promising (and perhaps facile) way to
fabricate novel tissue constructs15,16, as is described herein to control cell
behaviour by controlling the local chemical properties of gels.
Reconstituting adhesive biomolecules into biomaterials is of great
importance to understanding cell–substrate interactions that can be
translated to tissue-regeneration designs. Using 2D lithographic
techniques, adhesive biomolecules can be localized in arbitrary shapes
and sizes17,18. For example, patterning narrow strips of the extracellular
matrix (ECM) adhesion protein, laminin, on non-cell-adhesive 2D
substrates elicited.
More Related Content
Similar to Accounting and Financial Reporting – Current Developments .docx
416Business firms generally acquire property rights in lon.docxgilbertkpeters11344
416
Business firms generally acquire property rights in long-term assets through
purchases that are funded by internal sources or by externally borrowed
funds. The accounting issues associated with the purchase of long-term
assets were discussed in Chapter 9. Leasing is an alternative means of
acquiring long-term assets to be used by business firms. Leases that are not
in-substance purchases provide for the right to use property by lessees, in
contrast to purchases that transfer property rights to the user of the long-
term asset. Lease terms generally obligate lessees to make a series of pay-
ments over a future period. As such, they are similar to long-term debt.
However, if a lease is structured in a certain way, it enables the lessee to
engage in off–balance sheet financing (discussed in Chapter 11) because cer-
tain leases are not recorded as long-term debt on the balance sheet. Busi-
ness managers frequently wish to use off–balance sheet financing in order
to improve the financial position of their companies. However, as noted
earlier in the text, efficient market research indicates that off–balance sheet
financing techniques are incorporated into user decision models in deter-
mining the value of a company.
Leasing has become a popular method of acquiring property because it
has the following advantages.
1. It offers 100 percent financing.
2. It offers protection against obsolescence.
3. It is frequently less costly than other forms of financing the cost of the
acquisition of fixed assets.
4. If the lease qualifies as an operating lease, it does not add debt to the
balance sheet.
CHAPTER
13
Leases
Introduction 417
Many long-term leases possess most of the attributes of long-term debt.
That is, they create an obligation for payment under an agreement that is
noncancelable. The adverse effects of debt are also present in leases in that
an inability to pay may result in insolvency. Consequently, even though
there are statutory limitations on lease obligations in bankruptcy proceed-
ings, these limits do not affect the probability of the adverse effects of non-
payment on asset values and credit standing in the event of nonpayment of
lease obligations. The statutory limitations involve only the evaluation of the
amount owed after insolvency proceedings have commenced.
Management’s choice between purchasing and leasing is a function of
strategic investment and capital structure objectives, the comparative costs of
purchases of assets versus leasing assets, the availability of tax benefits, and per-
ceived financial reporting advantages. The tax benefit advantage is a major fac-
tor in leasing decisions. From a macroeconomic standpoint, the tax benefits of
owning assets may be maximized by transferring them to the party in the higher
marginal tax bracket. Firms with lower effective tax rates may engage in more
leasing transactions than firms in higher tax brackets since the tax benefits are
passed on to the lessor. El-Gazzar et .
Finvision impact series 1 - ed leases - lessee accountingFinvision
IFRS accounting - Exposure draft on lease accounting has been released recently. The presentation gives an brief overview on the basic principles and how it may impact your organization
I. IntroductionSince the Enron sandal in 2001, Security Exchange C.docxsheronlewthwaite
I. Introduction
Since the Enron sandal in 2001, Security Exchange Commission (SEC has made closing loopholes it’s hope priority. The SEC realized that there was a loophole relating to leasing. In 2006, FASB began to work on a new lease accounting standard intended to close the loophole of off-balance operating leases. The FASB and IASB issued a Discussion Paper proposing that lessees capitalize all leases on the balance sheet was done in 2009. In 2010, the FASB and IASB issued an Exposure Draft and distribute it for public comments. The model set forth in the ED proposed that lessees move all leases onto the balance sheet as a right-of-use asset and liability.
By 2013, the FASB and IASB issued a Revised Exposure Draft and opened a four-month comment period. After, the boards solidified parts of the standard, including that all leases would be brought onto the balance sheet, expense recognition models, and liability measurement. In 2016, the FASB published ASC-842, the new lease accounting standard for companies reporting under US GAAP. The IASB issued IFRS 16 the new lease accounting standard for companies reporting under the International Financial Reporting Standards.
In 2018, the FASB issued an update to ASC 842 to both clarify and simplify the application of the new lease standard to land easements. The FASB also issued a proposal to ease companies’ transition to the new standard by offering a practical expedient that would allow companies to apply the transition provisions at the adoption date, instead of at the earliest comparative period. The proposal was approved in July of 2018.Objective of Research Project.
The objective of the Research Project is to describe some of the key differences of presenting and reporting Leasing in the Financial Statements under U.S. GAAP and IFRS. Organization of text.
This paper starts by presenting the guidance applicable to Inventory under US GAAP and IFRS, this section contains the specific reference in each case as well as an illustrative case, who serves as an example of the application of the referred guidance. This section is followed by a little of history. A summary of History of Convergence by each standard as well a history of convergence between them. After having a theoretical picture of the Accounting Standards that rule Inventory, I compare both, beginning with its similarities and then explaining each of the differences encountered. Finally, I talked about the expectation of greater convergence between IFRS and US GAAP, exposing its possible impact and the elements that impede the complete convergence between them. At the end, the conclusions of this paper.U.S. GAAP Accounting Standards for Presentation of Financial Statements.Standard
The primary US GAAP and SEC guidance applicable to leasing accounting is the ASC 842 Leasing.Illustrative Case.
A lessee shall either present in the statement of financial position or disclose in the notes all of the following:
a. Finance lease right-of-u ...
The Financial Accounting Standards Board has issued Accounting Standards Update No. 2016-
02, Leases (Topic 842), an Amendment of the FASB Accounting Standards Codification, which outlines changes in the way that lessors are required to report certain monies collected for leased assets. These new lease accounting standards – known as ASC 842 – will go into effect for public companies January 2019 and for private companies and not-for-profits January 2020.
These changes affect the several aspects of lease accounting documentation,Learn What This Means for Your Business
The Financial Accounting Standards Board establishes standards of financial accounting that govern the preparation of financial reports in the private sector. This presentation outlines those standards for leases.
The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a The information being shared in this session is not a legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the legal consultation. Any opinion expressed by the presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be presenter is that individual’s view and may not be referred to the ICAPreferred to the ICAPreferred to the ICAPreferred to the ICAP referred to the ICAP referred to the ICAPreferred to the ICAP referred to the ICAP
Lease Accounting: Preparing Your Business for 2022Citrin Cooperman
Making a smooth transition to the new lease accounting standards and putting new practices in place for the future is a top priority for any business as they plan for 2022. During this webinar session, we reviewed how you can handle and prepare to navigate your business through the new lease accounting standards.
Topics included:
- What private companies should think about for 2022
- How the lease accounting standards can impact your financial
statements, financial covenants, and taxes
- Identifying opportunities for your business due to the new lease
accounting standards
In order to inform you of the upcoming changes in lease accounting and the impact on IFRS reporting for fleets, LeasePlan’s Head of Consultancy Matthew Walters answers the most important questions on this topic in the below Q&A.
Accounting for Leases
Unit-III
Leasing Environment:
A lease is a contractual agreement between a lessor and a lessee. This arrangement gives the lessee the right to use specific property, owned by the lessor, for a specified period of time. Lessee makes the payment to the lessor in return over the lease term for the use of the property.
The largest group of leased equipment involves Information technology, Transportation (trucks, motor cars), Construction and Agriculture.
Who are the Lessors? The lessors that own this property generally fall into one of following three categories:
1. Banks.
2. Captive leasing companies.
3. Independents.
Advantages of Leasing:
1. 100% financing at Fixed Rates: Leases are often signed without initial amount from the lessee. In addition, lease payments often remain fixed which protects the lessee against inflation and increases in the cost of money.
2. Protection against Obsolescence: Leasing equipmentreduces risk of obsolescence to the lessee, and in many cases passes the risk of residual value to the lessor.
3. Flexibility: Lease agreements may contain less restrictive provisions than other debt agreements. For example, the duration of the lease may be anything from short period of time to the entire expected economic life of the asset. The payment of rent in most cases is set to enable the lessor to recover the cost of the asset plus a fair return over the life of the lease.
4. Less Costly Financing: Some companies find leasing cheaper than other forms of financing. This may reduce the tax burden of the companies. Through leasing, the leasing companies or financial institutions use these tax benefits. They can pass some of these tax benefits back to the user of the asset in the form of lower rental payments.
5. Tax Advantages: For financial reporting purposes companies do not report an asset or a liability for the lease arrangement. For tax purposes, however, companies can capitalize and depreciate the leased assets.
6. Off-Balance-Sheet Financing: Some leases do not add debt on a balance sheet or affect financial ratios. But they may be added to borrowing capacity.
Accounting by the Lessee: Lessee capitalizes a lease; it records an asset and a liability generally equal to the present value of the rental payments. Lessor having transferred substantially all the benefits and risks of ownership recognizes a sale by removing the asset from the balance sheet and replacing it with a receivable.
Capitalization Criteria (Lessee): In order to record a lease as a capital lease, the lease must be non cancelable. In addition, it must meet one or more of the following four criteria.
1. Transfers ownership to the lessee.
2. Contains a bargain purchase option.
3. Lease term is equal to or greater than 75 percent of the estimated economic life of the leased property.
4. The present value of the minimum lease payments (excluding executor costs) equals .
Lease Accounting - The New Exposure DraftDecosimoCPAs
Decosimo Assurance Principal Robert Belcher presented "Leases - The New Exposure Draft" at the 2013 Decosimo Accounting Forum hosted by the University of North Alabama on July 19.
Your NamePractical ConnectionYour NameNOTE To insert a .docxnettletondevon
Your Name
Practical Connection
Your Name
NOTE: To insert a different Cover Page select the Insert tab from the Ribbon, then the cover page you want. Insert Your Name. Enter Your Industry and Phase below. You can use this template if you wish. Please erase this note before you submit.
Table of Contents
Phase 1: Educational and Employment History 2
Educational History and Goals (Include Certifications) 2
Employment History and Goals (Do NOT mention the name of the company you are writing about). 2
Phase 2: Telecommunications and Network Security Protocols implemented by your company (Fully describe 3 of the following components. Do NOT mention your company’s name, only the Industry) 2
Hosts and Nodes 2
IPv4 versus IPv6 2
Firewall 2
Virtual Private Network (VPN) 3
Proxy Servers 3
Network Address Translation (NAT) 3
Routers, Switches, and Bridges 3
The Domain Name System (DNS) 3
Intrusion Detection Systems and Intrusion Prevention Systems (IDS/IPS) 3
Network Access Control 3
Phase 3: As a Security Consultant and based on what you have learned in this course, how would you improve your company’s Telecommunications and Network Security Protocols? 3
Improvement 1 3
Improvement 2 3
Improvement 3 3
Bibliography 4
NOTE: To include a Word generated TOC select the References tab from the Ribbon, then Table of Contents. Select the format you wish. Remember, to use the built-in TOC you must use the MS Word “Styles” format from the Ribbon, specifically “Heading 1” for each phase heading, “Heading 2” for the phase sub-headings and “Normal” for the body.
Remember to update the TOC after adding any data to the body of the paper. To update the TOC simply click anywhere in the TOC, select Update Table, then select Update entire table and OK.
Please erase this note before you submit.Phase 1: Educational and Employment HistoryEducational History and Goals (Include Certifications)
Type Your Data Here.
NOTE: For each Phase you must have at least 2 references. Please use the References feature of Microsoft Word to manage your references.
To add a reference to the database do the following:
Select References from the Ribbon
Select Style, then APA
Select Insert Citation
Select Add New Source
Select Type of Source
Fill in the required information, select OK
To insert a reference from the database do the following:
Place the cursor just before the period at the end of the sentence. Then select Insert Citation and select the correct reference from the list (Sewart, 2014).
Please erase this note before you submit.Employment History and Goals (Do NOT mention the name of the company you are writing about).
Type Your Data Here. Type Your Data Here. Type Your Data Here. Type Your Data Here. Type Your Data Here.Phase 2: Telecommunications and Network Security Protocols implemented by your company (Fully describe 3 of the following components. Do NOT mention your company’s name, only the Industry)Hosts and Nodes
Type Your Data Here. Type Your Data Here. Type Your Da.
Your namePresenter’s name(s) DateTITILE Motivatio.docxnettletondevon
Your name:
Presenter’s name(s):
Date:
TITILE:
Motivation(s)/Statement of problem(s):
Objective(s):
Approach(s):
a. Materials:
b. Methods:
Findings:
Conclusions
LETTERS
nature materials | VOL 3 | APRIL 2004 | www.nature.com/naturematerials 249
T issue engineering aims to replace, repair or regeneratetissue/organ function, by delivering signalling molecules andcells on a three-dimensional (3D) biomaterials scaffold that
supports cell infiltration and tissue organization1,2. To control cell
behaviour and ultimately induce structural and functional tissue
formation on surfaces, planar substrates have been patterned with
adhesion signals that mimic the spatial cues to guide cell attachment
and function3–5. The objective of this study is to create biochemical
channels in 3D hydrogel matrices for guided axonal growth. An agarose
hydrogel modified with a cysteine compound containing a sulphydryl
protecting group provides a photolabile substrate that can be
patterned with biochemical cues. In this transparent hydrogel we
immobilized the adhesive fibronectin peptide fragment, glycine–
arginine–glycine–aspartic acid–serine (GRGDS),in selected volumes of
the matrix using a focused laser.We verified in vitro the guidance effects
of GRGDS oligopeptide-modified channels on the 3D cell migration
and neurite outgrowth. This method for immobilizing biomolecules in
3D matrices can generally be applied to any optically clear hydrogel,
offering a solution to construct scaffolds with programmed spatial
features for tissue engineering applications.
Hydrogels have been widely studied as tissue scaffolds because they
are biocompatible and non-adhesive to cells, allowing cell adhesion
to be programmed in6–8. Current microfabrication methods for
3D hydrogel matrices with controlled intrinsic structure mainly
include photolithographic patterning9–11, microfluidic patterning12,
electrochemical deposition13 and 3D printing14. Notably, although these
layering techniques can conveniently shape the hydrogel on X–Y planes,
they have limited control over both the coherence of the layers along the
z direction and the local chemistry. Combining photolabile hydrogel
matrices with focused light provides the possibility of eliminating the
layering process and directly modifying the local physical or chemical
properties in 3D. This results in a promising (and perhaps facile) way to
fabricate novel tissue constructs15,16, as is described herein to control cell
behaviour by controlling the local chemical properties of gels.
Reconstituting adhesive biomolecules into biomaterials is of great
importance to understanding cell–substrate interactions that can be
translated to tissue-regeneration designs. Using 2D lithographic
techniques, adhesive biomolecules can be localized in arbitrary shapes
and sizes17,18. For example, patterning narrow strips of the extracellular
matrix (ECM) adhesion protein, laminin, on non-cell-adhesive 2D
substrates elicited.
Your nameProfessor NameCourseDatePaper Outline.docxnettletondevon
Your name
Professor Name
Course
Date
Paper Outline
Thesis: Thesis statement here
I. Rough draft of introduction to essay/paper
II. First Major Point
A. Secondary point
B. Secondary point
C. Transition sentence into next paragraph
III. Second Major Point
A. Secondary point
B. Secondary point
C. Transition sentence into next paragraph
IV. Third Major Point
A. Secondary point
B. Secondary point
C. Transition sentence into next paragraph
(If there are more points, add them as items V, VI, etc. appropriately)
1
V. Rough draft of conclusion of essay/paper
A. Summary of discussion
B. Final observations
Works Cited
Livingston, James C. Anatomy of the Sacred: An Introduction to Religion. 6th ed. Upper Saddle River, N.J.: Pearson/Prentice Hall, 2009.
Rodrigues, Hillary, and John S. Harding. Introduction to the Study of Religion. Routledge, 2009.
.
Your name _________________________________ Date of submission _.docxnettletondevon
Your name: _________________________________ Date of submission: ______________________
ENG201 Milestone 4: #MyWordsChangeLives Project Outline
#MyWordsChangeLives Project Outline
#wordschangelives
Instructions: Save this document on your own computer. Type into each box and expand it as needed for the length of your response. Answer thoroughly!
PART 1: PERSONAL REFLECTION
TOPIC: What is one problem, issue, or need in the world, or in your own community, that you care a lot about?
PERSONAL CONNECTION: Why is this particular issue important to you? Is there something in your life experience or academic studies that relates?
ROOT CAUSE HYPOTHESIS: What do you think are some of the root causes of this issue? Explain.
AUDIENCE HYPOTHESIS: Based on the causes you have identified, who would be a good audience for you to try to make a change on this issue? Why?
RESEARCH QUESTIONS: The next step is research, What are 3 questions related to your issue that you want to answer during your research? Think of information that might help you better understand the issue in order to address or solve it.
PART 2: RESEARCH SUMMARY
SOURCE #1: Include APA-formatted citation here, including link if applicable:
How can you tell that this is a reliable source?
In this column, make a list of the most important facts or statistics you learned from this source:
In this column, explain in your own words why the facts you included to the left are important:
What was the most important thing you learned from this source? Why?
SOURCE #2: Include APA-formatted citation here, including link if applicable:
How can you tell that this is a reliable source?
In this column, make a list of the most important facts or statistics you learned from this source:
In this column, explain in your own words why the facts you included to the left are important:
What was the most important thing you learned from this source? Why?
SOURCE #3: Include APA-formatted citation here, including link if applicable:
How can you tell that this is a reliable source?
In this column, make a list of the most important facts or statistics you learned from this source:
In this column, explain in your own words why the facts you included to the left are important:
What was the most important thing you learned from this source? Why?
PART 3: PROJECT PLANNING OUTLINE
CREATE YOUR OWN TEXT-BASED CAMPAIGN!
Start outlining the components of your final project here.
You will explain each choice in greater detail and polished prose for your final project.
Headline: What is the “headline” of your campaign? What phrase or hashtag will you use? Why those words?
Message: What is the subtext of the campaign? In other words, what messages are you communicating by the headline?
Audience: With whom is your campaign de.
Your NameECD 310 Exceptional Learning and InclusionInstruct.docxnettletondevon
Your Name
ECD 310: Exceptional Learning and Inclusion
Instructor
Date
Inclusive and Differentiated Learning and Assessments
Hint 1: This template is intended to guide you; however, you’re encouraged to add or delete from this format as long as your final product aligns with the assignment requirements found under Week 3>Assignment.
Hint 2: Delete these highlighted “hints” before final submission.
Hint 3: Delete the prompt text included on each slide and replace it with your own content.
Only use this template if you are enrolled in the Bachelor of Arts in Early Childhood Education
Introduction
On this slide, provide a brief introduction to the topic of standardized assessment.
Hint: For help creating and editing slides in PowerPoint, see this guide on Creating PowerPoint Presentations.
Including All Students
On this slide, describe how you will ensure that all students are included in assessments and how you will make decisions about how children participate in assessments.
Accessibility for All
Summarize how you will make sure that the assessments are designed for accessibility by all.
Ensuring Fairness and Validity
Explain how you will make sure the assessment results are fair and valid.
Reporting the Results
Describe the importance of reporting the results of the assessment for all students.
Evaluating the Process
Examine how you will continually evaluate the assessment process to improve it and ensure student success.
Hint: Use scholarly sources in your presentation to support your ideas. Remember to include in-text citations.
Rationale
Explain your rationale, based on the age of children you plan to work with, the reasons why you would use standardized assessments.
Some reasons might be programmatic planning, differentiating instruction, identifying individual needs, and ensuring alignment with standards.
Hint: Make sure to support your reasoning with at least one scholarly source.
Collaboration
Discuss how, as an early childhood educator, you will collaborate with your colleagues to differentiate the assessment tools you will use to support the children you work with.
Conclusion
Include a brief conclusion to bring closure to your presentation.
.
Your Name University of the Cumberlands ISOL634-25 P.docxnettletondevon
Your Name
University of the Cumberlands
ISOL634-25 Physical Security
Week 17 Discussion Board
Professor Richards
Date
What is defensible space?
According to Fennelly (2013), defensible space is a surrogate term for the range of
mechanisms real and symbolic barriers, strongly defined areas of influence, improved
opportunities for surveillance that combine to bring an environment under the control of its
residents. To provide maximum security and control over an area, it should first be divided into
smaller, clearly defined areas or zones, which describe the defensible space (Wayland, 2015).
What is Crime Prevention through Environmental Design?
Crime Prevention through Environmental Design (CPTED) is a multidisciplinary
approach to the reduction of crime and the associated enhancement of the perception of personal
safety by inhabitants of an environment (Tipton & Nozaki, 2007). White (2014) stated that
CPTED is a concept in the security industry, basically meaning that you may be able to reduce
criminal acts from occurring with the proper design and planning of an environment. In theory,
Commented [MR1]: (Ensure you indent)
Commented [MR2]: (This is how you cite in the body of
your sentence)
Commented [MR3]:
Commented [MR4]: (This is how you cite at the end of
your sentences.
Commented [MR5]: Please use sub-headers for each
question you are answering
Commented [MR6]: Last names and year only
Commented [MR7]: Please cite
Commented [MR8]: You need to have in-text citation to
support your work. Without in-text citation your work is not
credible
you can make changes to the physical environment that allow for better physical and operational
controls of the property; as a result, it can further your crime prevention strategies.
References
Fennelly, L. J. (2013). Effective physical security (Fourth edition. ed.). Amsterdam: Butterworth-
Heinemannis an imprint of Elsevier.
Tipton, H. F., & Nozaki, M. K. (2007). Information security management handbook (6th ed.).
Boca Raton: Auerbach Publications.
Wayland, B. A. (2015). Emergency preparedness for business professionals : How to mitigate
and respond to attacks against your organization (1st edition. ed.). Wlatham, MA:
Elsevier.
White, J. M. (2014). Security risk assessment : Managing physical and operational security.
Amsterdam ; Boston: Butterworth-Heinemann is an imprint of Elsevier.
Commented [MR9]: You must have in-text citations along
with a reference list and they must correspond with each
other
Commented [MR10]: Last names with abbreviated first
name and year
Your Name
University of the Cumberlands
ISOL634-25 Physical Security
Week 17 Discussion Board
Professor Richards
Date
What is defensible space?
According to Fennelly (2013), defensible space is a surrogate term for the range of
mechanisms real and symbolic barriers, strongly defined areas of influence, improved
opportu.
Your Name Professor Name Subject Name 06 Apr.docxnettletondevon
Your Name:
Professor Name:
Subject Name:
06 April 2019
Active exhibition
For most people, a hospital is a place that we don't want to go, but we may have to go if
we get ill. Pain and death brought by diseases terrify us, which make us avoid thinking
of a hospital, not to mention visiting a hospital if not necessary. As for me, a hospital is a
special place. My father is a doctor who helps thousands of patients get well. I spent my
childhood watching him cure patients and bring happiness back to their life. A hospital
represents hope and wellness to patients and their loved ones, and we cannot simply
correlate it with the negative image brought by diseases, form an idea for illness and
even hospital fear. I want to propose a series of exhibitions to awaken people's outdated
and even prejudiced views, just like “A Hacker Manifesto” taught us. We need to bring
this spirit to break the perception in the traditional sense. This exhibition, I hope to let
patients or visitors think more deeply about what disease or disability has brought us.
Inspired by ‘A Hacker Manifesto’, I want to subvert mundane ideas and provide a
completely new experience to hospital visitors through this exhibition. Many relate their
past bad experiences and sad stories with hospitals. Thus, they hold a negative and
prejudice attitude toward the hospital and refuse to change. In this exhibition, I will
present the ‘hope’ and ‘wellness’ side of the hospital. Instead of breaking us down, a
hospital is protecting us from losing health or even life. Also, I want to exhibit the
optimism and fortitude the patients have when they fight against diseases. The shining
qualities they maintain to win the battle of life are so inspiring. We can understand the
meaning of life better from the hospital exhibition.
To organize an impressive exhibition, I choose a comprehensive hospital with a large
amount of patients. In this way, more people will be attracted to the exhibition in the
hospital than in smaller hospitals. They can enjoy the exhibition works when they wait in
line. There are many kinds of patients in general hospitals. I hope to bring some new
concept or idea to the patient.
After comparing several local hospitals in San Francisco, I decided to choose the
hospital in Kaiser Permanente. Kaiser's hospitals are widely distributed, and almost all
of California's medical systems are involved. Exhibitions can have more widely flowed,
and the community around Kaiser is rich. There are companies as well as residential
areas and even schools. The success of the exhibition can benefit the surrounding
communities more broadly.
Kaiser Permanente Campus in San Francisco
For a specific location, I chose the Kaiser Permanente San Francisco Medical Center
and Medical Offices (2425 Geary Blvd, San Francisco, CA 94115). In the lobby of the
entrance, you can see a very wide area, on the righ.
Your muscular system examassignment is to describe location (su.docxnettletondevon
Your muscular system exam/assignment
is to describe location (superior & inferior attachments, action and innervations of the following muscles: please make sure to describe that mentioned above on each muscles.
Deltoid
Triceps brachii
Biceps brachii
Coracobrachialis
Brachialis
Brachioradialis
Sternocleidomastoid
Trapezius
Latissimus Dorsi
Supraspinatus
Infraspinatus
Subscapularis
Sartorius
Iliotibial tract/band
Tensor Fascia Lata
Describe glenohumeral joint (anatomy, ligaments, and movements at this articulation).
.
Your midterm will be a virtual, individual assignment. You can choos.docxnettletondevon
Your midterm will be a virtual, individual assignment. You can choose one of the following to complete:
-Website (sites.google.com or wordpress.com)
-Blog (blogger.com or tumblr)
-Vlog
You have to find a way to tie in
ALL
of the following topics in your multimedia midterm project:
-Cellular Reproduction
-Meiosis
-DNA structure/Function
-Bacteria and Archaea
-Protists
You'll either have to explain your information at an elementary, lay (someone not familiar with science), or the scientific level.
Your midterm project will be due on February 26, 2020 at 11:59 pm.
In your project you aren’t giving definitions, you’re explaining in a unique way how all the topics tie in together. If you choose elementary you need to be creative and engaging as they have a short attention span and have little to no knowledge of science. For the lay audience you’ll need to relate it to the real world or real world events. Think of this audience as explaining these subjects to your mother or grandmother. For the scientific audience, you must use scientific language and present your information in a matter of fact way. This requires an innovative mindset.
.
Your local art museum has asked you to design a gallery dedicated to.docxnettletondevon
Your local art museum has asked you to design a gallery dedicated to works of art from one of the following movements:
Modernism
You may use Word or PowerPoint to design your gallery.
You will design your gallery as if you were guiding a visitor to each work of art.
In your gallery, include the following:
A brief introduction to your gallery, which includes a description of the movement and the time period to which your gallery is dedicated.
Six images of works of art that incorporate the characteristics significant to movement and time period. Along with each image of a work of art, include the citation for the work of art. A summary of how the media (materials), methods, and subject are significant to that time period and region, using appropriate art terminology.
A summary of how iconographic, historical, political, philosophical, religious, and social factors of the movement are reflected in the work of art.
Make use of at least three scholarly sources
Cite your sources
.
Your letter should include Introduction – Include your name, i.docxnettletondevon
Your letter should include:
Introduction – Include your name, if you are a full-time or part-time student, your program name and your semester of study.
Body of letter – Why do you think you qualify for an award? Include your volunteer work within the community.
Conclusion – Show your appreciation for being considered and include how receiving an award will assist with your education.
.
Your legal analysis should be approximately 500 wordsDetermine.docxnettletondevon
Your legal analysis should be approximately 500 words
Determine whether Mr. Johnson discriminated against Ms. Djarra based on religion.
Discuss whether Mr. Johnson offered reasonable accommodations to Ms. Djarra.
Identify the amount and type of damages to be awarded, if any.
The Religious Discrimination – Reasonable Accommodations analysis
Tip for what I need for the analysis section: An analysis section draws meaning from the events that occurred. Go in depth about the implications of their viewpoints or actions.
.
Your Last Name 1Your Name Teacher Name English cl.docxnettletondevon
Your Last Name 1
Your Name
Teacher Name
English class number
Due Date
Title
Start typing here. Delete the notes below after you read through them.
Indent each paragraph and use double spacing and the following formatting:
1 inch margins
Times New Roman
12 point font type
DO NOT use any of the following:
NO border,
NO word art,
NO drawings,
NO ALL CAPS,
NO exclamation points!,
Your Last Name 2
NO underlining,
NO bold,
NO italics (except for references to literature)
NO different font types, sizes or colors.
.
Your job is to delegate job tasks to each healthcare practitioner (U.docxnettletondevon
Your job is to delegate job tasks to each healthcare practitioner (Use the Staffing Table).
Instructions:
Fill in the
Staffing Table
or describe what tasks each person will perform during the day shift.
Use a Staffing Model (primary, team, or modular nursing) to help make your decision.
Your paper should be:
Typed according to APA style for margins, formatting and spacing standards
Typed into a Microsoft Word document or complete the Staffing Table, save the file, and then upload the file
.
Your job is to look at the routing tables and DRAW (on a piece of pa.docxnettletondevon
Your job is to look at the routing tables and DRAW (on a piece of paper) the topology based on the information in the routing tables. All of the LANS have the first address (.1). Your deliverable is to draw the topology, with the router names, with the interface names and addresses based on the information given. Please take a picture of your drawing and attach it to the dropbox.
I already did this assignment. i am attaching my work also, i am so confused about these ports. i am attaching, my professors note as well. PLEASE READ IT CAREFULLY. and fix it
you did not list the serial ports correctly. The serial ports are what connect the routers together. 2 connecting serial ports will have addresses on the SAME network. The serial port does not stick out of the router like the LANs, the serial ports connect the routers to each other.
.
Your job is to design a user interface that displays the lotto.docxnettletondevon
Your job is to design a user interface that displays the lotto balls that are drawn when drawing up to balls from 5 total of 30 balls.
Use 5 image elements to display the ball images from this zipfile:
lottoballs.zip
(I WILL ATTACH THE FILE)
Use a button to perform the drawing.
Use a Lotto class object in the script lotto-class.js to simulate drawing the balls.
Use a CSS file to set the fonts, colors, and sizes of the elements on your page.
Include a link back to your index page. ** ONLY SHOW FIVE BALLS IN HTML
The Lotto class object draws the balls with replacement and sorts them in numeric order before outputting them.
Allow the user to choose how many balls from which to draw and how many balls to draw. This provides a variety of Lotto games to play.
.
Your Introduction of the StudyYour Purpose of the stud.docxnettletondevon
Your
Introduction
of the Study
Your
Purpose
of the study
Your
Methodology
Add your ethical considerations for the survey to your Methodology
Add your measurement strategy to your Methodology
Include a copy of the questionnaire or survey in the Methodology
Provide your
Data Analysis
with survey results
Data results should be provided in graphic form, making them user-friendly information
Provide your
Conclusion
regarding the study. Be sure to tell how well you answered your research question, the status of your hypothesis (true/false), and the value of your survey results for your topic moving forward
USE the attached paper to complete final.
.
Your instructor will assign peer reviewers. You will review a fell.docxnettletondevon
Your instructor will assign peer reviewers. You will review a fellow student's Week 1 materials and provide substantive and constructive feedback to them on the direction for their final paper (250 word minimum). Is something useful missing from the outline? Do you know additional sources (or places to find good sources) the person might want to include? Do you understand clearly his or her topic and thesis?
Fellow Student week I material:
Title of Paper: Long Term Effects of Child Abuse and Neglect.
Introduction:
The voice that is hardly heard. Child abuse and neglect have become predators within human history. As time has passed the outstanding cases that have come about over the many years have raised many eyebrows and society has become appreciative to the revilement of these evil acts within all communities. Child abuse and neglect can take place in a home as well as outside a home places many couldn’t even imagine such as within our school system as well as playgrounds. Even though many times these evil acts take place within a home it can be done by family, friends and acquaintances of the child. Child abuse and neglect can be performed in various ways such as neglect, physical abuse, sexual abuse, psychological abuse and emotional abuse.
Direct Statement and Research Question:
The voice that is hardly heard. Can child abuse and child neglect affect an individual?
Proposal:
The paper that I am presenting to you today will explore the aspects of child abuse, child neglect, effects of the abuse, signs of abuse, signs of neglect, symptoms, risk factors, treatment and prevention. Individuals have their own presumptions of their definition of child abuse as well as child neglect. Some of those presumptions that I have heard were the failure to provide enough love to a child, the failure to provide enough necessities to a child. Child neglect and abuse goes deeper than this the emotional neglect, physical neglect and medical neglect. Where a child sustained physical injuries due to the act of hitting, shaking, burning and kicking describes physical abuse. Sexual activity that the child cannot consent of or comprehend refers to sexual abuse. These acts involve anal and genital intercourse, oral contact, and fondling. Emotional as well as psychological abuse involves those words of putting children down, vulgar language, screaming and yelling can all involve emotional as well as psychological abuse towards a child.
Methodology and Data:
I plan on delivering my methodology through statistics such as research journals and individuals in society that also work with children who have been abused as well as neglected such as interviewing social workers, teachers, health professionals and individuals within society. Understanding that many abused children do not come forward because of that fear that has been placed in them. The fear of becoming the blame, the fear of being rejected or refused, the fear of the blame and the fear of being ashamed so.
Your initial reading is a close examination of the work youve c.docxnettletondevon
Your initial reading is a close examination of the work you've chosen before you read about it. In order to describe what you see, you might consider:
What do you notice first? Why? What do the colors convey? How? How is the space occupied? Is there a foreground and a background (2D) or is the piece sculptural (3D) with mass and volume? Is there an implied shape, such as a triangle, square, or circle, that brings balance to the composition? Are there diagonal lines that make it dynamic?
Next, read the materials provided about the work of art. You are welcome to do additional research on the internet as long as you use reputable websites, such as those from museums and art publications. Go back to your piece and take an even closer look. Think about what you've read and what you see. How does its meaning deepen from additional information the work of art?
Then, consider how the formal elements play into the artist's intention or audience's interpretation of the work. Making connections and observations about form and content are the key to writing a strong analysis. Remember to cite as appropriate.
Include several of areas from the first and second points to bring you to the third point.
1. Initial Reading (what do you see and understand when you first look at the work?)
Medium (materials)
Formal Elements
Subject
2. Contextual Research
Content
History
Emphasis
Effect
Symbolism
Relevance
Political Parallels
Social Implications
Audience?
Influences?
Captions/Title/Text
Ethical/Logical/Emotional Appeal?
3. Meaning
Bring it together. What does the work of art mean? Develop a persuasive, cohesive analysis that includes what you see through form and context.
.
Your initial posting must be no less than 200 words each and is due .docxnettletondevon
Your initial posting must be no less than 200 words each and is due
no later than Wednesday 11:59 PM EST/EDT.
The day you post this will count as one of your required four unique postings.
Identify the standard that courts use to qualify someone as an expert witness. Then discuss the standards used to allow that individual's testimony in court. Here, you will want to refer to the Federal Rules of Evidence as well as the Daubert Standard and several other important landmark cases. Include in your response the Saint Leo core value of integrity.
Saint Leo Core Value of Integrity:
The commitment of Saint Leo University to excellence demands that its members live its mission and deliver on its promise. The faculty, staff, and students pledge to be honest, just, and consistent in word and deed.
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Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
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This presentation includes basic of PCOS their pathology and treatment and also Ayurveda correlation of PCOS and Ayurvedic line of treatment mentioned in classics.
Thinking of getting a dog? Be aware that breeds like Pit Bulls, Rottweilers, and German Shepherds can be loyal and dangerous. Proper training and socialization are crucial to preventing aggressive behaviors. Ensure safety by understanding their needs and always supervising interactions. Stay safe, and enjoy your furry friends!
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Read| The latest issue of The Challenger is here! We are thrilled to announce that our school paper has qualified for the NATIONAL SCHOOLS PRESS CONFERENCE (NSPC) 2024. Thank you for your unwavering support and trust. Dive into the stories that made us stand out!
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Accounting and Financial Reporting – Current Developments .docx
1. Accounting and Financial Reporting – Current Developments
156
I. Changes Coming To Lease Accounting
The FASB's lease accounting project has nine lives and has
survived two exposure drafts while
headed toward final passage. As of early 2015, the FASB is
putting the finishing touches on a
new lease standard that, when passed, will make dramatic
changes to the way companies
account for lease transactions. In particular, most leases will be
capitalized, resulting in billions
of dollars of assets and liabilities being recorded on company
balance sheets.
Although the lease accounting project has gone through
numerous changes, the fundamental
concept that leases be capitalized is not going to change in the
final document.
In this section, the author discusses the general concepts that
are included in the most recent
lease exposure draft, with modifications that have been
proposed by the FASB through their
ongoing deliberations.
Background
Under current GAAP, ASC 840, Leases (formerly FASB No.
2. 13), divides leases into two
categories: operating and capital leases. Capital leases are
capitalized while operating leases
are not. In order for a lease to qualify as a capital lease, one of
four criteria must be met:
1. The present value of the minimum lease payments must equal
or exceed 90% or more of
the fair value of the asset.
2. The lease term must be at least 75% of the remaining useful
life of the leased asset.
3. There is a bargain purchase at the end of the lease.
4. There is a transfer of ownership.
In practice, it is common for lessees to structure leases to
ensure they do not qualify as capital
leases, thereby removing both the leased asset and obligation
from the lessee’s balance sheet.
This approach is typically used by restaurants, retailers, and
other multiple-store facilities.
Consider the following example:
Facts:
Lease 1: The present value of minimum lease payments is 89%
and the lease term is 74% of
the remaining useful life of the asset.
Lease 2: The present value of minimum lease payments is 90%
3. or the lease term is 75% of the
remaining useful life of the asset.
Accounting and Financial Reporting – Current Developments
157
Conclusion: There is a one percent difference between Lease 1
and Lease 2. Lease 1 is an
operating lease not capitalized, while Lease 2 is a capital lease
under which both the asset and
lease obligation are capitalized.
SEC pushes toward changes in lease accounting
In its report entitled Report and Recommendations Pursuant to
Section 401(c.) of the
Sarbanes-Oxley Act of 2002 On Arrangements with Off-Balance
Sheet Implications, Special
Purpose Entities, and Transparency of Filings by Issuer, the
SEC targeted lease accounting as
one of the areas that results in significant liabilities being off-
balance sheet.
According to the SEC Report that focused on U.S. public
companies and a U.S. Chamber of
Commerce report:
a. 63 percent of companies record operating leases while 22
percent record capital leases.
b. U.S. companies have approximately $1.5 trillion in operating
4. lease obligations that are
off-balance sheet.
c. European companies have a total of approximately $928
billion in off-balance sheet
operating lease obligations.
d. 73 percent of all leases held by U.S. public companies ($1.1
trillion) involve the leasing
of real estate.
In its Report, the SEC noted that because of ASC 840’s
(formerly FASB No. 13’s) bright-line
tests (90%, 75%, etc.), small differences in economics can
completely change the accounting
(capital versus operating) for leases.
Keeping leases off-balance sheet, while still retaining tax
benefits, is an industry unto itself.
So-called synthetic leases are commonly used to maximize the
tax benefits of a lease while not
capitalizing the lease for GAAP purposes.
In addition, lease accounting abuses have been the focus of
restatements with approximately
270 companies, mostly restaurants and retailers, restating or
adjusting their lease accounting in
the wake of Section 404 implementation under Sarbanes-Oxley.
Retailers have the largest amount of operating lease obligations
outstanding that are not
recorded on their balance sheets. Consider the following table:
5. Accounting and Financial Reporting – Current Developments
158
Operating Leases Obligations Outstanding- Major Retailers
Retailer
Lease
Obligations
(in thousands)
Office Depot Inc. $1,104
Walgreens Co. 27,434
CVS 38,917
Whole Foods 6,322
Sears 7,608
Source: Annual reports
The previous table shows the amount of off-balance sheet lease
obligations for some of the
largest U.S. retailers. These numbers are significant and bring
to the forefront the pervasive
impact the proposed lease standard would have on the larger
retailers. For example, CVS has
almost $39 billion of off-balance sheet lease obligations.
FASB-IASB lease project
6. Since the Sarbanes-Oxley Act became effective, the FASB has
focused on standards that
enhance transparency of transactions and that eliminate off-
balance-sheet transactions, the
most recent of which was the issuance of ASC 810,
Consolidation of Variable Interest Entities
(formerly FIN 46R). The FASB added to its agenda a joint
project with the IASB that would
replace existing lease accounting rules found in ASC 840
(formerly FASB No. 13) and its
counterpart in Europe, IASB No. 17. The FASB and IASB
started deliberations on the project
in 2007, and issued a discussion memorandum in 2009, followed
by the issuance of an
exposure draft in 2010 entitled Leases (Topic 840).
The 2010 exposure draft was met with numerous criticisms that
compelled the FASB to issue a
second, replacement exposure draft on May 16, 2013 entitled
Leases (Topic 842), a revision of
the 2010 proposed FASB Accounting Standards Update, Leases
(Topic 840).
Given the fact that the FASB has now issued two exposure
drafts and received extensive public
comments, the second exposure draft is likely to pass as a final
statement, with minor further
edits.
Following are some of the changes that the FASB and IASB
have included in their proposed
new lease model as outlined in the May 2013 Exposure Draft.
Basic concepts of the lease exposure draft
7. The core principle of the proposed requirements found in the
2013 Exposure Draft is that an
entity should use the right-of-use model to account for leases
which would require the entity to
Accounting and Financial Reporting – Current Developments
159
recognize assets and liabilities arising from a lease. Thus, most
existing operating leases would
be brought onto the balance sheet.
In accordance with the right-of-use model:
1. A lessee would recognize assets and liabilities for any leases
that have a maximum possible
lease term of more than 12 months.
a. Leases with terms of 12 months or less would have the
option of remaining as operating
leases.
Following is a summary of the key elements of the proposed
lease standard.
Lessee:
1. At the commencement date, a lessee would measure both of
the following:
• A lease liability (liability to make lease payments)
8. • A right-of-use asset (right to use the leased asset for the lease
term)
a. Lease liability: The lease liability would be recorded at the
present value of the lease
payments over the lease term, discounted using the rate the
lessor charges (the lessor’s
imputed rate) the lessee based on information available at the
commencement date.
1) If the lessor’s imputed rate cannot be readily determined, the
lessee would use its
incremental borrowing rate.
2) Nonpublic entities would be permitted to use a risk-free
discount rate, determined
using a period comparable to that of the lease term, as an
accounting policy election
for all leases. The risk-free discount rate would be a U.S.
Treasury instrument rate
for the same term as the lease.
b. Right-of-use asset:
1) At the commencement date, the cost of the right-of-use
asset would consist of all of
the following:
• The amount of the initial measurement of the lease liability
9. • Any lease payments made to the lessor at or before the
commencement date, less
any lease incentives received from the lessor, and
• Any initial direct costs incurred by the lessee.
Accounting and Financial Reporting – Current Developments
160
2) At the commencement date, initial direct costs would be
included as part of the cost
of the lease asset capitalized and may include:
• Commissions
• Legal fees
• Evaluating the prospective lessee’s financial condition
• Evaluating and recording guarantees, collateral, and other
security contracts
• Negotiating lease terms and conditions
• Preparing and processing lease documents
• Payments made to existing tenants to obtain the lease
The following items are examples of costs that would not be
initial direct costs:
- General overheads, including for example, depreciation,
occupancy and
10. equipment costs, unsuccessful origination efforts, and idle time,
and
- Costs related to activities performed by the lessor for
advertising, soliciting
potential lessees, servicing existing leases, or other ancillary
activities.
c. Lease payments:
1) At the commencement date, lease payments included in the
lease liability would
consist of the following payments related to the use of the
underlying asset during
the lease term that are not yet paid:
• Fixed payments, less any lease incentives receivable from the
lessor
• Variable lease payments that depend on an index or a rate
(such as the Consumer
Price Index or a market interest rate), initially measured using
the index or rate at
the commencement date
• Variable lease payments that are in-substance fixed payments
Note: The FASB has announced that it is considering changing
the exposure
draft so that variable lease payments would be included in the
11. initial
measurement of lease assets and liabilities only if such
payments depend on
an index or a rate.
• Amounts expected to be payable by the lessee under residual
value guarantees
• The exercise price of a purchase option if the lessee has a
significant economic
incentive to exercise that option
Accounting and Financial Reporting – Current Developments
161
Note: The FASB has announced that it is considering replacing
the
"significant economic incentive" threshold with a higher
threshold of being
"reasonably assured" that the lessee will exercise the purchase
option.
• Payments for penalties for terminating the lease, if the lease
term reflects the
lessee exercising an option to terminate the lease
2) Variable lease payments: Variable lease payments would be
included in lease
12. payments used to calculate the lease liability if:
• The lease payments would depend on an index or rate, such as
a CPI index. Each
year, the lessee would adjust the lease obligation to reflect the
present value of
the remaining lease payments using latest index in effect at the
end of that year.
• The lease payments would be in-substance, fixed payments,
such as a minimum
annual increase of 2 percent per year.
Lease payments based on performance (such as a percentage of
sales, with no
minimum) would not be reflected in the lease payments in
computing the lease
obligation. Instead, such payments would be recorded annually
as actual sales are
generated.
d. Lease term: An entity would determine the lease term as the
noncancellable period of
the lease, together with both of the following:
1) Periods covered by an option to extend the lease if the lessee
has a significant
economic incentive to exercise that option, and
13. 2) Periods covered by an option to terminate the lease if the
lessee has a significant
economic incentive not to exercise that option.
a) Factors would be considered together, and the existence of
any one factor would
not necessarily signify that a lessee has a significant economic
incentive to
exercise, or not to exercise, the option. Examples of factors to
consider would
include, but would not be limited to, any of the following:
• Contractual terms and conditions for the optional periods
compared with
current market rates
• Significant leasehold improvements that are expected to have
significant
economic value for the lessee when the option to extend or
terminate the
lease or to purchase the asset becomes exercisable.
John
Typewritten Text
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John
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14. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
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John
Typewritten Text
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John
Typewritten Text
Accounting and Financial Reporting – Current Developments
162
• Costs relating to the termination of the lease and the signing
of a new lease,
such as negotiation costs, relocation costs, costs of identifying
another
underlying asset suitable for the lessee‘s operations, or costs
associated with
returning the underlying asset in a contractually specified
condition or to a
contractually specified location.
• The importance of that underlying asset to the lessee‘s
operations,
considering, for example, whether the underlying asset is a
specialized asset
and the location of the underlying asset.
15. Example: A retail lessee, a liquor store, has a 5-year lease with
two, 5-year
options. It would be very difficult for the lessee to move the
liquor store due to
neighborhood opposition. Thus, the store location is very
important to the lessee.
Conclusion: The lessee most likely has a significant economic
incentive to
exercise the options so that the lease term is probably 15 years.
Note: The FASB has announced that it is considering replacing
the
"significant economic incentive" threshold with a higher
threshold of being
"reasonably assured" that the lessee will exercise the option.
3) Reassessment of lease term: An entity would reassess the
lease term only if either of
the following occurs:
a) There is a change in relevant factors, that would result in the
lessee having or no
longer having a significant economic incentive either to
exercise an option to
extend the lease or not to exercise an option to terminate the
lease.
Note: A change in market-based factors (such as market rates
to lease a
16. comparable asset) shall not, in isolation, trigger reassessment of
the lease term.
b) The lessee does either of the following:
• Elects to exercise an option even though the entity had
previously determined
that the lessee did not have a significant economic incentive to
do so, or
• Does not elect to exercise an option even though the entity had
previously
determined that the lessee had a significant economic incentive
to do so.
e. Classification of leases: The Exposure Draft establishes two
types of leases:
Type A lease: Lease in which lessee expects to consume more
than an insignificant
portion of the economic benefits (life) of the asset:
Accounting and Financial Reporting – Current Developments
163
• Would apply to most leases of assets other than property (for
example, equipment,
aircraft, cars, trucks).
17. • Would recognize a right-of-use asset and a lease liability,
initially measured at the
present value of lease payments.
• Would recognize the unwinding of the discount on the lease
liability as interest
separately from the amortization of the right-of-use asset.
• Total expense would be accelerated and shown in two expense
components:
- Interest expense (accelerated), and
- Amortization expense (straight-line).
Type B lease: Lease in which the lessee expects to consume
only an insignificant
portion of the economic benefits (life) of the asset:
• Would apply to most leases of property (that is, land and/or a
building or part of a
building).
• Would recognize a right-of-use asset and a lease liability,
initially measured at the
present value of lease payments (same as Type A lease).
18. • Would recognize a single lease expense, combining the
unwinding of the discount
on the lease liability (interest) with the amortization of the
right-of-use asset, on a
straight-line basis.
• Total expense would be recorded on a straight-line basis
throughout the lease term.
The following chart compares the proposed standard with
existing GAAP for leases.
Comparison of Existing GAAP Versus Proposed GAAP for
Leases
Lessee Side
Description Current GAAP for Operating
Leases
Proposed GAAP
Lease type Leases are classified as operating or
capital leases (financing arrangements)
based on satisfying one of four criteria.
• 75% rule
• 90% rule
• Bargain purchase
• Transfer of ownership
All leases classified as financing
19. arrangements (as if asset
purchases)
Right-of-use asset and lease
liability recorded at present value
of payments over the lease term
Accounting and Financial Reporting – Current Developments
164
Lease term Non-cancellable periods
Option periods generally not included
in lease term
Non-cancellable period together
with any options to extend or
terminate the lease when there is a
significant economic incentive for
the lessee to exercise an option to
extend the lease
Contingent/variable
rents
Contingent rents excluded from lease
payments. When paid, they are period
costs
Variable rents included in lease
20. payments in certain instances
Income statement Operating leases- lease expense
straight-line basis
Capital leases- depreciation and
interest expense
Two approaches:
TYPE A LEASE: Interest and
amortization expense recorded as
accelerated expense
TYPE B LEASE: Lease expense
recorded as combination of
interest and amortization- straight-
line expense
Assessment Terms are not re-assessed Leases reassessed in
certain
instances
TYPE A VERSUS B LEASES
INCOME STATEMENT EFFECT
0
5
10
22. Lessor:
Accounting and Financial Reporting – Current Developments
165
1. A lessor would account for leases using the following rules:
a. Type A lease: Lessee is expected to consume more than an
insignificant portion of the
economic benefits (life) of the asset:
• Most leases of assets other than property (for example,
equipment, aircraft, cars,
trucks)
• Lessor would:
1) Derecognize (remove) the underlying asset and recognize
two new assets:
a) Lease receivable: Reflecting the right to receive lease
payments, and
b) Residual asset: Reflecting the right the lessor retains in the
underlying asset at
the end of the lease.
2) Recognize the unwinding of the discount on both the lease
23. receivable and the
residual asset as interest income over the lease term. Interest
income is recorded
on an accelerated basis.
3) Recognize any profit relating to the lease at the
commencement date.
Note: The FASB has announced that it is considering changing
some of the
proposed elements in the May 2013 exposure draft as they relate
to Lessors.
• A lessor would determine lease classification (Type A or B)
on the basis of
whether the lease is effectively a financing or a sale. A lessor
would make the
determination by assessing whether the lease transfers
substantially all of the
risks and rewards incidental to ownership of the underlying
asset.
• A lessor would be precluded from recognizing selling profit
and revenue at
lease commencement for any Type A lease that does not transfer
control of the
underlying asset to the lessee.
• For Type A leases from the lessor's perspective, the FASB
would eliminate the
receivable and residual approach.
24. b. Type B lease: Lessee is expected to consume only an
insignificant portion of the
economic benefits (life) of the asset:
• Most leases of assets of property (that is, land and/or a
building or part of a
building).
Accounting and Financial Reporting – Current Developments
166
• Lessor would:
1) Apply an approach similar to existing operating lease
accounting in which the
lessor would do the following:
a) Retain the lease asset on the lessor’s balance sheet, and
b) Recognize lease (rental) income over the lease term typically
on a straight-
line basis.
Short-term leases:
25. 1. A lessee would not be required to recognize lease assets or
lease liabilities for short-term
leases.
2. A short-term lease is defined as follows:
"A lease that, at the date of commencement of the lease, has a
maximum
possible term, including any options to renew, of 12 months or
less."
3. For short-term leases, the lessee would recognize lease
payments as rent expense in the
income statement on a straight-line basis over the lease term,
unless another systematic and
rational basis is more representative of the time pattern in
which use is derived from the
underlying asset.
Note: The proposal would treat short-term leases (12 months or
less) as operating leases by
not requiring the lessee to record the lease asset and liability.
Instead, rent expense would
be recorded on a straight-line basis as incurred, although the
proposal would permit an
entity to use another approach (other than a straight-line
method) to record rent expense if
that alternative is more representative of the time pattern in
which the lessee uses the lease
asset.
26. 4. A lessee would be permitted (but is not required) to record a
lease asset and liability for a
short-term lease.
5. Lessors: Lessors would be permitted to elect to account for
all short-term leases by not
recognizing lease assets or lease liabilities and by recognizing
lease payments received in
rental income on a straight-line basis over the lease term, or
another systematic and rational
basis that is more representative of the time pattern in which
use is derived from the
underlying asset.
Accounting and Financial Reporting – Current Developments
167
Disclosures:
1. Both lessees and lessors would provide disclosures to meet
the objective of enabling users
of financial statements to understand the amount, timing, and
uncertainty of cash flows
arising from leases.
Transition- existing leases:
1. Existing leases would not be grandfathered, thereby requiring
existing operating leases
27. to be brought onto the balance sheet.
a. All existing outstanding leases would be recognized and
measured at the date of initial
application using a simplified retrospective approach.
b. On transition, a lessee and a lessor would recognize and
measure leases at the beginning
of the earliest period presented using either a modified
retrospective approach or a full
retrospective approach.
Effective date: The FASB will set the effective date for the
proposed requirements when they
consider interested parties' feedback on this revised Exposure
Draft.
a. The effective date is likely to be no earlier than 2016, and
possibly as late as 2017.
Impact of proposed changes to lease accounting
The proposed lease accounting changes would be devastating to
many companies and would
result in many more leases being capitalized which would
impact all financial statements.
In particular, retailers would be affected the most.
If leases of retailers, for example, are capitalized, the impact on
28. financial statements would be
significant, as noted below:
• Lessee’s balance sheets would be grossed up for the
recognized lease assets and the
lease obligations for all lease obligations.
Note: Including contingent lease payments and renewal options
may result in overstated
liabilities given the fact that contingent payments must be
included in the lease
payments and renewal options must be considered in
determining the lease term.
• For Type A leases, lessee’s income statements would be
adversely affected with higher
lease expense in the earlier years of new leases.
Accounting and Financial Reporting – Current Developments
168
Note: Even though total lease expense is the same over the life
of a lease, lease expense
(interest and amortization expense) under a capital lease is
higher in the earlier years as
compared with lease expense under an operating lease.
On average, a 10-year lease would incur approximately 15-20%
higher annual lease
29. expense in the earlier years, if capitalized, as compared with an
operating lease. That
higher lease amount would reverse in the later years.
• For Type A leases, on the statement of cash flows, there would
be a positive shift in
cash flow to cash from operations from cash from financing
activities. A portion of rent
expense previously deducted in arriving at cash from operations
would now be deducted
as principal payments in cash from financing activities. Thus,
companies would have
higher cash from operating activities and lower cash from
financing activities.
• In most cases, annual lease expense for GAAP (interest and
amortization) would not
match lease expense for income tax purposes thereby resulting
in deferred income taxes.
Changes to both the balance sheets and income statements of
companies would have rippling
effects on other elements of the lessee companies.
1. On the positive side, a lessee’s earnings before interest,
taxes, depreciation, and
amortization (EBITDA) may actually improve as there is a shift
from rent expense under
operating leases to interest and amortization expense under the
proposed standard.
30. a. Both interest and amortization expense are not deducted in
arriving at EBITDA while
rent expense is.
b. Changes in EBITDA may affect existing agreements related
to compensation, earn outs,
bonuses, and commissions.
2. On the negative side, for Type A and B leases, lessee debt-
equity ratios would be affected
with entities carrying significantly higher lease obligation debt
than under existing GAAP.
Higher debt-equity ratios could put certain loan agreements
into default. Moreover, net
income would be lower in the earlier years of the lease term
due to higher interest and
amortization expense replacing rental expense.
How significant would the change to the proposed lease
standard be for U.S. companies?
As previously noted, there are approximately $1.5 trillion of
operating lease obligations that
are not recorded on public company balance sheets. That $1.5
trillion is magnified by the many
nonpublic companies that have unpublished operating lease
obligations that are unrecorded.
31. Accounting and Financial Reporting – Current Developments
169
The author estimates that unrecorded lease obligations of
nonpublic operating leases is at least
another $1.3 trillion, bringing estimated total unrecorded lease
obligations to approximately
$2.8 billion.
Consider the following estimated impacts of shifting those
operating leases to capitalized right-
of-use leases, based on a report issued by Change & Adams
Consulting, commissioned by the
U.S. Chamber of Commerce and others:
a. Earnings of retailers would decline significantly. One recent
study suggested that there
would be a median drop in EPS of 5.3 percent and a median
decline in return on assets
of 1.7 percent.
b. Public companies would face $10.2 billion of added annual
interest costs.
c. There would be a loss of U.S. jobs in the range of 190,000 to
3.3 million.
d. Cost of compliance with the new standard would lower U.S.
GDP by $27.5 billion a
year.
e. Lessors would lose approximately $14.8 billion in the value
in their commercial real
32. estate.
f. Balance sheets would be loaded with significant lease
obligations that would impact
debt-equity ratios.
• Aggregate debt of nonfinancial S&P 500 companies would
increase by 17 percent if
all leases were capitalized.
• Return on assets would decline as total assets (the
denominator) would increase by
approximately 10 percent.
• The S&P 500 would record an estimate of $549 billion of
additional liabilities under
the proposed lease standard on existing operating leases.31
• U.S. companies, as a whole (public and nonpublic), would
record approximately
$7.8 trillion of additional liabilities if operating leases are
capitalized.32
According to a Credit Suisse study,33 there are 494 of the S&P
500 companies that are
obligated to make $634 billion of total future minimum lease
payments under operating leases.
On a present value basis, including contingent rents, the $634
billion translates into an
additional liability under the proposed standard of $549 billion.
Of the $549 billion of
additional liabilities, 15 percent of that total relates to retail
33. companies on the S&P 500.
In some cases, the effect of capitalizing lease obligations under
the proposed lease standard is
that the additional liability exceeds stockholders’ equity.
31 Leases Landing on Balance Sheet (Credit Suisse)
32 Author’s estimate: $1.5 trillion for public companies and
$6.3 trillion for nonpublic companies
33 Leases Landing on Balance Sheet (Credit Suisse)
Accounting and Financial Reporting – Current Developments
170
Consider the following table:
Impact of Capitalizing Leases – Selected Retailers
Based on Annual Reports
Retailer
Operating lease
obligations
PV
converter
34. 5 years
4%
(a)
Additional
liability
under new lease
standard
Stockholders’
equity
% equity
Office Depot Inc. $ 2 B .822 $1.6 B $661 M 248%
Walgreens Co. 35 B .822 28.8 B 18 B 160%
CVS 28 B .822 23.0 B 38 B 61%
Whole Foods 6.8 B .822 5.6 B 3.8 B 147%
Sears 4.5 B .822 3.7 B 3.1 B 119%
Source:Annual Reports, as obtained by the author.
(a) Assumes the weighted-average remaining lease term is 5
years, and the incremental borrowing rate is 4%.
The previous table identifies the sizeable problem that exists for
many of the U.S. retailers
which is that there are huge off-balance sheet operating lease
liabilities as a percentage of
company market capitalization. Under the proposed lease
standard, these obligations would be
35. recorded, thereby having a devastating impact on those
retailers’ balance sheets. For example,
look at Office Depot and its $1.6 billion lease liability that
would represent 248% of its
stockholders’ equity of $661 million.
How would the proposed lease standard impact how leases are
structured?
Companies are going to consider the balance sheet impact when
structuring leases and in
deciding whether to lease or buy the underlying asset, in the
first place. There are several likely
actions that would come from the proposed standard:
1. Lease versus buy decision impacted: By implementing the
proposed standard, the
GAAP differences between leasing and owning an asset would
be reduced. Having to
capitalize all leases may have a significant effect on the lease
versus purchase decision,
particularly with respect to real estate.
a. Tenants, in particular those in single-tenant buildings with
long-term leases, may
choose to purchase a building instead of leasing it.
• A similar amount of debt would be included on the tenant’s
balance sheet under a
long-term lease as compared with a purchase.
• GAAP depreciation under a purchase may actually be lower
than amortization
36. under a lease because the amortization life under the lease
(generally the lease
term) is likely to be shorter than the useful life under a
purchase.
Accounting and Financial Reporting – Current Developments
171
Example: Assume there is a 10-year building lease with two, 5-
year lease
options, resulting in a maximum lease term of 20 years. Assume
further that the
useful life of the building is 30 years for depreciation purposes.
If the entity leases the real estate, the right-of-use asset would
be amortized over
a maximum of 20 years. If, instead, the entity were to purchase
the real estate,
the building would be depreciated over the useful life of 30
years.
Note: In some instances, lessees may choose to purchase the
leased asset rather than
lease it, if the accounting is the same. In particular, the
purchase scenario may be
more appealing for longer-term leases that have significant debt
obligations on the
lessee balance sheets. Lessees with shorter-term leases will not
be burdened with the
extensive debt obligations and, therefore, may choose not to
37. purchase the underlying
lease asset.
b. Lease terms are likely to shorten: For many companies who
do not wish to purchase
the underlying leased asset, lease terms may shorten to reduce
the amount of the
lease obligation (and related asset) that is recorded at the lease
inception.
• The proposed lease standard would affect not only the
landlords and tenants, but
also brokers as there would be much greater emphasis placed on
executing leases
for shorter periods of times thereby increasing the paperwork
over a period of
time and the commissions earned.
c. Deferred tax assets would be created: Because many
operating leases would now be
capitalized for GAAP but not for tax purposes, total GAAP
expense (interest and
amortization) would be greater than lease expense for tax
purposes, resulting in
deferred tax assets for the future tax benefits that would be
realized when the
temporary difference reverses in later years.
Under existing GAAP, most, but not all, operating leases are
treated as operating leases (true
38. leases) for tax purposes. Therefore, rarely are operating leases
capitalized for tax purposes.
Now, the game is about to change if operating leases are
capitalized as right-of-use assets
under GAAP, while they continue to be treated as operating
leases (true leases) for tax
purposes. As we have seen in the previous examples, most
leases capitalized under the
proposed standard would result in the creation of a deferred tax
asset.
Other Considerations – Dealing With Financial Covenants
The proposed lease standard would cast a wide web across the
accounting profession. By
capitalizing leases that were previously off-balance sheet as
operating leases, there may be
consequences.
Accounting and Financial Reporting – Current Developments
172
Examples:
• Impact on state apportionment computations: Many states
compute the apportionment
of income assigned to that state using a property factor based on
real and tangible
personal property held in that particular state.
39. Note: When it comes to rent expense, most states capitalize the
rents using a factor such
as eight times rent expense. Although each state has its own set
of rules, the
implementation of the proposed standard may have a sizeable
positive or negative
impact on state tax apportionment based on shifting rent
expense to capitalized assets.
• Impact on tax planning: Capitalizing leases might have a
positive effect in tax planning.
Note: One example is where there is a C corporation with
accumulated earnings and
exposure to an accumulated earnings tax (AET). The additional
lease obligation liability
would certainly help justify that the accumulation of earnings is
not subject to the AET.
• Impact on total asset and liability thresholds: Companies
should also be aware that not
only would the proposed standard increase liabilities, but would
also increase total
assets.
Note: In some states, there are total asset thresholds that drive
higher taxes and
reporting requirements.
Dealing with financial covenants
40. A critical impact of the proposed standard would be that certain
loan covenants may be
adversely impaired, thereby forcing companies into violations
of their loans.
Consider the following ratios:
Ratio Likely impact of proposed
lease standard
EBITDA:
[Earnings before interest, taxes,
depreciation and amortization]
Type A Leases:
Favorable impact due to shift from rental
expense to interest and amortization expense,
both of which are added back in computing
EBITDA.
Type B Leases:
May be favorable impact depending on
whether “lease expense” is added back to
compute EBITDA.
Accounting and Financial Reporting – Current Developments
173
Interest coverage ratio:
41. Earnings before interest and taxes
Interest expense
May be negatively impacted from lower ratio
Debt-equity ratio:
Total liabilities
Stockholders’ equity
Negative impact from higher ratio
There would be a favorable impact on EBITDA for Type A
leases by implementing the
proposed standard. Rent expense recorded for operating leases
under existing GAAP would be
reduced while interest expense and amortization expense would
increase once the leases are
capitalized.
However, the issue is what happens to EBITDA for Type B
leases. Under the proposal, interest
and amortization are combined as one line item on the income
statement entitled “lease
expense.” The question is whether that line item is added back
in arriving at EBITDA. The
author believes it should be added back because it represents
interest and amortization despite
the lease expense label.
As to the interest coverage ratio, the impact on the ratio
depends on whether there is a Type A
or B lease. For a Type A lease, earnings before interest and
taxes would likely be higher as rent
42. expense is removed and replaced with interest and amortization
expense. For Type A leases,
the denominator increases significantly due to the higher
interest expense. On balance, the
slightly higher earnings before interest and taxes divided by a
higher interest expense in the
denominator yields a lower interest coverage ratio.
For a Type B lease, the impact on the ratio is unclear. Although
interest expense, along with
amortization expense, would be embedded in the caption line
item “lease expense,” most
analysts would likely carve out the interest and amortization
components and adjust the interest
coverage ratio by the interest portion.
Perhaps the most significant impact of capitalizing leases under
the proposed lease standard
would be its effect on the debt-equity ratio. With sizeable
liabilities being recorded, this ratio
would likely turn quite negative and severely impact company
balance sheets. In some cases,
the debt-equity ratio would result in violation of existing loan
covenants thereby requiring a
company to renegotiate the covenants with its lenders or at least
notify lenders in advance of
the likely lack of compliance with loan covenants.
What about the impact on smaller nonpublic entities?
One leasing organization noted that more than 90 percent of all
leases involve assets worth less
than $5 million and have terms of two to five years.34 That
means that smaller companies have
a significant amount of leases most of which are currently being
accounted for as operating
43. 34 Equipment Leasing and Financing Association (ELFA)
“Companies: New Lease Rule Means Labor Pains” (CFO. com).
Accounting and Financial Reporting – Current Developments
174
leases. Previously, the author estimated that the present value of
unrecorded lease obligations
under operating leases of nonpublic entities to be at least $6.3
trillion which is much higher
than the estimated $1.5 trillion of unrecorded lease obligations
of public companies.
Unless these smaller, nonpublic entities choose to use the
income tax basis for their financial
statements, under GAAP, these companies would be required to
capitalize their operating
leases.
What about related party leases?
Some, but not all, related party leases result in the lessee
(parent equivalent) consolidating the
lessor (subsidiary equivalent) under the consolidation of
variable interest entity rules (ASC
810) (formerly FIN 46R). The common example of a related-
party lease is where an operating
company lessee leases real estate from its related party lessor.
In general, under FIN 46R, if
there is a related party lessee and lessor, consolidation is
required if:
44. 1. The real estate lessor is a variable interest entity (VIE) (e.g.,
it is not self-sustaining),
and
2. The lessee operating company and/or the common
shareholder provide financial support
to the real estate lessor in the form of loans, guarantees of bank
loans, above-market
lease payments, etc.
If these two conditions are met, it is likely that the real estate
lessor must be consolidated in
with the operating company lessee’s financial statements. If
there is consolidation, capitalizing
the lease under the proposed standard would be moot because
the asset and liability, and lease
payments would be eliminated in the consolidation.
In 2014, the Private Company Council (PCC) issued ASU 2014-
07, Consolidation (Topic 810)
Applying Variable Interest Entities Guidance to Common
Control Leasing Arrangements (a
consensus of the PCC), which provides private (nonpublic)
entities an election not to apply the
consolidation of VIE rules to a related-party lease arrangement.
When implemented, the ASU
should provide most private companies with relief from the VIE
rules for related party leases.
Thus, most private (nonpublic) entities involved in related-party
leases will not be
consolidating the lessor into the lessee.
When it comes to a related-party lease in which there is no
consolidation, the parties would
45. have to account for that lease as a right-of-use lease asset and
obligation, just like any other
lease transaction. Consequently, under the proposed standard,
the operating company lessee
would be required to record a right-of-use asset and lease
obligation based on the present value
of the lease payments.
Accounting and Financial Reporting – Current Developments
175
Many related parties either do not have formal leases or the
leases are short-term. If the
operating company lessee is going to have to record a
significant asset and liability, it may
make sense to have a related-party lease that has a lease term of
12 months or less or is a
tenant-at-will arrangement.
With respect to a related party lease that is 12 months or less,
the proposed standard would
permit (but not require) use of the short-term lease rules as
follows:
a. A lessee would treat the short-term lease as an operating
lease with no recognition of
the lease asset or lease liability. The rental payments would be
recognized as rent
expense on a straight-line basis.
46. b. On the lessor side, the lessor would record rental income on a
straight-line basis and not
record the lease asset and liability.
c. Either the lessee or lessor could elect to record the lease asset
and liability using the
proposed standard rules.
With many related-party leases, the operating company lessee
may issue financial statements
while the real estate lessor does not. Therefore, how the lessee
accounts for the transaction
under GAAP may be more important than the lessor’s
accounting for the transaction.
Let’s look at a simple example:
Example:
Company X is a real estate lessor LLC that leases an office
building to a related party
operating Company Y. X and Y are related by a common owner.
The companies sign an annual 12-month lease with no renewals,
and no obligations that extend
beyond the twelve months.
Monthly rents are $10,000.
Y issues financial statements to its bank while X does not issue
financial statements.
Y chooses ASU 2014-07’s election not to consolidate X into Y’s
47. financial statements.
Conclusion:
Because the entities have a short-term lease of 12 months or
less, Y, as lessee, would qualify
for the short-term lease rules. Therefore, Y would not record a
lease asset and liability and,
instead, would record the monthly rent payments and rent
expense on a straight-line basis over
the short-term lease period.
Accounting and Financial Reporting – Current Developments
176
Alternatively, Y could elect to treat the short-term lease as a
standard lease by recording both
the lease asset and liability.
As to the lessor, it would also not record the lease asset and
liability and, instead, would record
rental income on a straight-line basis over the 12-month period.
Observation: If the proposed standard is issued in final form,
many nonpublic entities would
take steps to avoid its arduous rules. One approach will likely
be to make sure the related-party
leases have terms that are 12 months or less so that the lease
can be treated as an operating
lease and not capitalized. Another approach would be to issue
income tax basis financial
statements.
48. Status of lease project:
As of February 2015, the FASB and IASB continue
redeliberating on the May 2013 exposure
draft.
The Boards are proposing the following changes to the May
2013 exposure draft:
1. A lease modification should be accounted for as a new lease,
separate from the original
lease, when certain criteria are met.
2. Variable lease payments should be included in the initial
measurement of lease assets and
liabilities only if such payments depend on an index or a rate,
and that the entity should
measure those payments using the index or rate at lease
commencement.
3. Discount rate:
• Initial direct costs of the lessor should be included in
determining the rate implicit in
the lease.
• The lessee would be required to reassess the discount rate only
when there is a change
to either the lease term or the assessment of whether the lessee
is or is not reasonably
49. certain to exercise an option to purchase the underlying asset.
• The lessor would not be required to reassess the discount rate.
4. Type A and B leases:
• The dual approach (Type A and B leases) would be retained
except for the way in
which leases are classified between Type A and B. A lease
would be classified as
Type A if it is essentially an installment purchase of the asset.
Most existing capital
leases would fall into the Type A category, while most existing
operating leases would
fall into the Type B lease category.
Accounting and Financial Reporting – Current Developments
177
Note: The IASB decided not to follow the FASB's dual approach
and, instead, uses a
single approach of accounting for all leases as Type A leases.
• For lessors, the determination of whether a lease is a Type A
or Type B lease would
change from the May 2013 exposure draft:
A lessor would determine lease classification (Type A or B) on
50. the basis of whether
the lease is effectively a financing or a sale. A lessor would
make the determination
by assessing whether the lease transfers substantially all of the
risks and rewards
incidental to ownership of the underlying asset.
• A lessor would be precluded from recognizing selling profit
and revenue at lease
commencement for any Type A lease that does not transfer
control of the underlying
asset to the lessee.
• For Type A leases from the lessor's perspective, the FASB
would eliminate the
receivable and residual approach found in the May 2013
exposure draft.
5. The Boards have tentatively agreed to permit lease guidance
to be applied at a portfolio
level by lessees and lessors.
6. Lease term and options:
• The Boards decided that, when determining the lease term, an
entity should consider all
relevant factors that create an economic incentive to exercise an
option to extend, or not
to terminate, a lease.
• The concept of "significant economic incentive" to exercise a
51. purchase option, would be
replaced with a higher threshold of "reasonably certain."
• An entity would include an option period in a lease term only
if it is "reasonably
certain" that the lessee will exercise the option having
considered all relevant economic
factors.
Note: "Reasonably certain" is a high threshold substantially
same as "reasonably
assured" that is in existing U.S. GAAP.
• A lessee would be required to reassess the lease term only
upon the occurrence of a
significant event or a significant change in circumstances that
are within the control of
the lessee.
• A lessor would not be permitted to reassess the lease term.
Accounting and Financial Reporting – Current Developments
178
• A purchase option would be included in the computation of the
initial lease amounts
52. using the same "reasonably assured" threshold that would apply
to lease options.
Latest developments- lease accounting standard
The FASB and IASB are moving forward toward the issuance of
a final lease statement.
In its January 2015 meeting, the FASB modified some of the
disclosures that would be
required under new lease accounting.
In particular, the FASB decided not to provide any disclosure
relief for nonpublic entities, so
the disclosure package would equally apply to public and
nonpublic entities alike.
J. The GAAP Codification
It is important for all accountants to fully understand the
Accounting Standards Codification
(ASC) that became effective in 2009.
After years of a FASB codification based on FASB statement
numbers, the FASB recodified
all standards by topic, rather than statement number reference.
Now, the FASB Accounting Standards Codification (ASC)
consists of a single source of
authoritative nongovernmental U.S. GAAP, that superseded all
documents previously issued
by the FASB, AICPA, EITF, and related literature.
The FASB’s objective is to establish the FASB Accounting
Standards Codification™
53. (Codification or ASC) as the source of authoritative accounting
principles recognized by the
FASB to be applied by nongovernmental entities in the
preparation of GAAP financial
statements. Rules and interpretive releases of the Securities and
Exchange Commission (SEC)
under authority of federal securities laws are also sources of
authoritative GAAP for SEC
registrants.
The codification was established through the issuance of FASB
No. 168: The FASB
Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting
Principles (currently ASC 105) which establishes a new
Codification. FASB Accounting
Standards Codification (FASB ASC) is the source of
authoritative GAAP recognized by the
FASB to be applied by nongovernmental entities.
Key elements of the codification follow:
1. FASB Statement No. 168 was the final standard issued by
FASB in an individual
statement format.
Heads Up
Bring It On!
FASB’s New Standard Brings Most
Leases Onto the Balance Sheet
54. by James Barker, Trevor Farber, Stephen McKinney, and Tim
Kolber, Deloitte & Touche LLP
After working for almost a decade, the FASB has finally issued
its new standard on accounting for
leases, ASU 2016-02.1 The IASB issued its own version, IFRS
16,2 in January, and although the project
was a convergence effort and the boards conducted joint
deliberations, there are several notable
differences between the two standards. We have highlighted
those in the table below.
The primary objective of the leases project was to address the
off-balance-sheet financing concerns
related to lessees’ operating leases. However, developing an
approach that requires all operating leases
to be recorded on the balance sheet proved to be no small task.
During the process, the boards had to
grapple with questions such as (1) whether an arrangement is a
service or a lease, (2) what amounts
should be initially recorded on the lessee’s balance sheet for the
arrangement, (3) how to reflect the
effects of leases in the statement of comprehensive income of a
lessee (a point on which the FASB
and IASB were unable to converge), and (4) how to apply the
resulting accounting in a cost-effective
manner.
Accordingly, the FASB’s new standard introduces a lessee
model that brings most leases on the
balance sheet. The standard also aligns certain of the underlying
principles of the new lessor model
with those in ASC 606, the FASB’s new revenue recognition
standard (e.g., evaluating how collectibility
should be considered and determining when profit can be
recognized). Furthermore, the ASU addresses
55. other concerns related to the current almost-40-year-old leases
model. For example, it eliminates the
required use of bright-line tests in current U.S. GAAP for
determining lease classification. It also requires
lessors to provide additional transparency into the exposure to
the changes in value of their residual
assets and how they manage that exposure.
The new standard, which is effective for calendar periods
beginning on January 1, 2019, for public
business entities and January 1, 2020, for all other entities (see
the Effective Date section for more
information), represents a wholesale change to lease accounting,
and as a result, entities will face
significant implementation challenges during the transition
period and beyond, such as those related to:
• Applying judgment and making estimates.
• Managing the complexities of data collection, storage, and
maintenance.
• Enhancing information technology systems to ensure their
ability to perform the calculations
necessary for compliance with reporting requirements.
1 FASB Accounting Standards Update No. 2016-02, Leases.
The ASU supersedes FASB Accounting Standards Codification
(ASC) Topic 840, Leases,
and creates ASC 842, Leases. For titles of additional ASC
references, see Deloitte’s “Titles of Topics and Subtopics in the
FASB Accounting
Standards Codification.“
2 IFRS 16, Leases. For more information on the IASB’s
standard, see Deloitte’s January 13, 2016, IFRS in Focus.
56. March 1, 2016
Volume 23, Issue 5
In This Issue
• A Snapshot of the
New Guidance
• Scope
• Short-Term Leases
• Definition of a Lease
• Lease Classification
• Lease Term
• Lease Payments
• Discount Rate
• Lessee Accounting
• Lessor Accounting
• Effective Date
• Appendix A —
Evaluating Whether
an Arrangement Is
or Contains a Lease
• Appendix B —
Other Significant
57. Provisions
• Appendix C —
Presentation
Requirements
• Appendix D —
Disclosure
Requirements
• Appendix E —
Transition
• Appendix F —
Implementation
Considerations
Join us on
March 15 at
2:00 p.m. EDT
for a Dbriefs
webcast on the
new standard.
http://www.fasb.org/cs/ContentServer?c=FASBContent_C&page
name=FASB%2FFASBContent_C%2FCompletedProjectPage&ci
d=1176167904031
http://www.iasplus.com/en-
us/publications/us/other/codtopics/file
http://www.iasplus.com/en-
us/publications/us/other/codtopics/file
http://www.iasplus.com/en-us/publications/global/ifrs-in-
focus/2016/ifrs-16
https://www2.deloitte.com/us/en/pages/dbriefs-
59. discussed include lease modifications,
separating lease and nonlease components, and accounting for
sale-and-leaseback
transactions.)
• Appendix C — Presentation Requirements.
• Appendix D — Disclosure Requirements.
• Appendix E — Transition.
• Appendix F — Implementation Considerations.
A Snapshot of the New Guidance
The table below highlights the key provisions of the new leases
accounting model under ASU 2016-02
and IFRS 16.
Key Provision ASU 2016-02 IFRS 16
Scope Scope includes leases of all property, plant, and
equipment (PP&E) and excludes:
• Leases of intangible assets.
• Leases to explore for or use nonregenerative
resources.
• Leases of biological assets.
• Leases of inventory.
• Leases of assets under construction.
Scope includes leases of all assets (not limited
60. to PP&E). Exceptions are similar to those in ASU
2016-02. Also, lessees can elect to apply the
guidance to leases of intangible assets.
Short-term lease A lessee may recognize the payments on a
short-
term lease on a straight-line basis over the lease
term (in a manner similar to its recognition of an
operating lease today). These leases would not be
reflected on the lessee’s balance sheet.
A short-term lease is defined as a lease that
has a lease term of 12 months or less and does
not include a purchase option that the lessee is
reasonably certain to exercise.
A lessee may recognize the payments on a short-
term lease on a straight-line basis over the lease
term (in a manner similar to its recognition of an
operating lease today). These leases would not be
reflected on the lessee’s balance sheet.
A short-term lease is defined as a lease that has
a lease term of 12 months or less and does not
include a purchase option.
3
Key Provision ASU 2016-02 IFRS 16
Definition of a lease A lease is defined as a “contract, or part of
a
contract, that conveys the right to control the use
of identified property, plant, or equipment (an
61. identified asset) for a period of time in exchange
for consideration.“
A lease is defined as a “contract, or part of a
contract, that conveys the right to use an asset
(the underlying asset) for a period of time in
exchange for consideration.“
• A leased asset must be specifically identifiable either
explicitly (e.g., by a serial number) or implicitly (e.g., the
only asset available to satisfy the lease contract).
o Substantive substitution rights will need to be considered.
o A physically distinct portion of a larger asset could represent
a specified asset (e.g., one floor of a
building).
o A capacity portion of a larger asset will generally not
represent a specified asset (e.g., percentage
of a storage tank).
• A lease contract conveys the right to control the use of the
identified asset for a specified period of time. A
customer controls an identified asset when the customer has
both of the following:
o The right to obtain substantially all of the economic benefits
from its use.
o The right to direct its use.
Leases of low-value
assets
No exemption under U.S. GAAP. However, the
62. FASB believes that an entity will be able to adopt
a reasonable capitalization policy under which the
entity will not recognize certain lease assets and
liabilities that are below a certain threshold.
A lessee may recognize the payments on a
lease of low-value assets on a straight-line basis
over the lease term (in a manner similar to its
recognition of an operating lease today). These
leases would not be reflected on the lessee’s
balance sheet. IFRS 16 does not define “low
value“; however, when the IASB was discussing
the exception during deliberations, the Board
referred to assets that were less than $5,000.
In addition, an entity will be able to adopt a
reasonable capitalization policy under which the
entity will not recognize certain lease assets and
liabilities that are below a certain threshold.
Lessee accounting As of the lease commencement date, a lessee
recognizes:
• A liability for its lease obligation (initially measured at the
present value of the future lease payments not yet
paid over the lease term).
• An asset for its right to use the underlying asset (i.e., the
right-of-use (ROU) asset) equal to the lease liability,
adjusted for lease payments made at or before lease
commencement, lease incentives, and any initial direct
costs.
The lessee will use the effective interest rate
method to subsequently account for the lease
liability.
63. Two approaches are used for subsequently
amortizing the ROU asset: (1) the finance lease
approach and (2) the operating lease approach.
Under the finance lease approach, the ROU asset
is generally amortized on a straight-line basis. This
amortization, when combined with the interest
on the lease liability, results in a front-loaded
expense profile in which interest and amortization
are presented separately in the income statement.
By contrast, the operating lease approach
generally results in a straight-line expense profile
that is presented as a single line item in the
income statement.
The determination of which approach to apply
is based on lease classification criteria that are
similar to the current requirements in IAS 17.3
The lessee will use the effective interest rate
method to subsequently account for the lease
liability.
A single approach (similar to the FASB’s finance
lease approach) is used to subsequently amortize
the ROU asset.
3 IAS 17, Leases.
4
Key Provision ASU 2016-02 IFRS 16
64. Lessor accounting Retains the current lessor accounting
approach
for operating and capital (direct financing and
sales-type) leases.
However, the lease classification criteria will
change, and the treatment of dealer’s profit, if
any, will be affected:
• A dealer’s profit would be recognized up front
if the arrangement is a sales-type lease (i.e., the
transaction qualifies as a sale under ASC 606).
• A dealer’s profit resulting from a direct financing
lease, if any, would be deferred and recognized
as interest income over the lease term.
Eliminates leveraged lease accounting
going forward (existing leveraged leases are
grandfathered).
Retains the current lessor accounting approach
for operating and finance leases. A dealer’s
profit for a finance lease is recognized up front
without regard to the revenue guidance in
IFRS 15.4
Lease term Lease term is the noncancelable period in which
the lessee has the right to use an underlying
asset together with optional periods for which
it is reasonably certain that the lessee will
exercise the renewal option or not exercise the
termination option or in which the exercise of
those options is controlled by the lessor. Lessees
will be required to reassess the lease term after
65. lease inception if (1) there is a significant event
or change in circumstances that is directly
attributable to the actions of the lessee, (2) a
contract term obliges the lessee to exercise (or
not exercise) an option to extend or terminate
the lease, or (3) the lessee elects to exercise (or
not exercise) an option to renew or terminate
the contract that it had previously determined
was not reasonably certain to be exercised.
A lessor is not required to reassess the lease
term unless the lease is modified and the
modified lease is not a separate contract.
Lease term is the noncancelable period in which
the lessee has the right to use an underlying
asset together with optional periods for which
it is reasonably certain that the lessee will
exercise the renewal option or not exercise the
termination option. Lessees will be required to
reassess the lease term after lease inception
if (1) there is a significant event or change in
circumstances that is directly attributable to the
actions of the lessee or (2) the lessee elects to
exercise (or not exercise) an option to renew
or terminate the contract that it had previously
determined was not reasonably certain to be
exercised.
A lessor is not required to reassess the lease
term unless the lease is modified and the
modified lease is not a separate contract.
Lease payments Lease payments include:
• Fixed payments (including in-substance fixed lease payments).
66. • Variable payments that are based on an index or rate (e.g.,
LIBOR or the consumer price index (CPI))
calculated by using the index or rate that exists on the lease
commencement date (i.e., the spot rate).
• Amounts that it is probable will be owed under residual value
guarantees (for lessees), and amounts at
which residual assets are guaranteed by a lessee or by a third
party (for lessors).
• Payments related to renewal or termination options that the
lessee is reasonably certain to exercise.
Lease payments do not include variable lease payments that are
based on the usage or
performance of the underlying asset (e.g., a percentage of
revenues).
Variable payments based on an index or rate
would only be reassessed when the lease
obligation is reassessed for other reasons (e.g.,
change in the lease term, modification).
Variable payments based on an index or rate
would be reassessed whenever there is a
change in contractual cash flows (e.g., the lease
payments are adjusted for a change in the CPI).
Discount rate • Lessees use the rate charged by the lessor if the
rate is readily determinable. If the rate is not readily
determinable, lessees will use their incremental borrowing rate
as of the date of lease commencement.
• Lessors use the rate they charge the lessee.
67. Private-company lessees can elect to use a
risk-free rate.
No exemptions provided for private-company
lessees.
4 IFRS 15, Revenue From Contracts With Customers.
5
Key Provision ASU 2016-02 IFRS 16
Lease modifications A lease modification is any change to the
contractual terms and conditions of a lease.
• A lessee/lessor would account for a lease modification as a
separate contract (i.e., separate from the
original lease) when the modification (1) grants the lessee an
additional ROU asset and (2) the price of
the additional ROU asset is commensurate with its stand-alone
price.
• Lessees would account for a lease modification that is not a
separate contract by using the discount
rate as of the modification effective date to adjust the lease
liability and ROU asset for the change in the
lease payments. The modification may result in a gain or loss if
the modification results in a full or partial
termination of an existing lease.
• Lessors would account for a lease modification in a manner
generally consistent with the modification
guidance in ASC 606 or IFRS 15.
68. • See Appendix B for more information.
Sublease The intermediate lessor would classify a
sublease by using the underlying asset of the
head lease.
The intermediate lessor would classify a
sublease by using the ROU asset of the head
lease.
Sale-and-leaseback
arrangements
The transaction would not be considered a sale
if (1) it does not qualify as a sale under ASC 606
or (2) the leaseback is a finance lease.
• A repurchase option would result in a failed sale
unless (1) the exercise price of the option is at fair
value and (2) there are alternative assets readily
available in the marketplace.
• If the transaction qualifies as a sale, the entire
gain on the transaction would be recognized.
The transaction would not be considered a sale
if it does not qualify as a sale under IFRS 15.
• A repurchase option would always result in a
failed sale.
• For transactions that qualify as a sale, the gain
would be limited to the amount related to the
residual portion of the asset sold. The amount
of the gain related to the underlying asset leased
69. back to the lessee would be offset against the
lessee’s ROU asset.
Scope
Like the scope under current requirements, the scope of the new
guidance is limited to leases of PP&E.
The scope excludes (1) leases of intangible assets; (2) leases to
explore for or use minerals, oil, natural
gas, and similar nonregenerative resources; (3) leases of
biological assets; (4) leases of inventory; and (5)
leases of assets under construction.
Editor’s Note: Under the proposal issued by the boards in May
2013, the scope of the
lease accounting guidance would have included inventory (e.g.,
spare parts and supplies) and
construction work in progress (CWIP). However, constituents
expressed concerns that if the
guidance applied to CWIP, build-to-suit transactions (in which
the customer is involved with the
construction activity) may be accounted for as leases. In
response, the FASB revisited the scope
of the guidance in late 2015 and decided to limit it to PP&E.
However, it also decided to include
guidance on a lessee’s control of an underlying asset that is
being constructed before lease
commencement and related considerations. See Build-to-Suit
Arrangements in Appendix B for
additional information.
Short-Term Leases
Under the ASU, a lessee can elect (by asset class) not to record
on the balance sheet a lease whose
term is 12 months or less and does not include a purchase
70. option that the lessee is reasonably certain
to exercise (i.e., treat the lease like an operating lease under
current U.S. GAAP). When determining
whether the lease qualifies for this election, the lessee would
include renewal options only if they are
considered part of the lease term (i.e., those options the lessee
is reasonably certain to exercise — see
the Lease Term section below).
6
A lessee electing this option would recognize lease payments as
an expense over the lease term on a
straight-line basis. The lessee would also be required to disclose
certain information about the short-
term lease. If the lease term increases to more than 12 months,
or if it is reasonably certain that the
lessee will exercise an option to purchase the underlying asset,
the lessee would no longer be able to
apply the short-term lease exception and would account for the
lease as it would other leases.
Example 1 — Short-Term Leases
Scenario 1 — Short-Term Lease Criteria Met
Company A (lessee) enters into an arrangement to lease a crane
for a six-month period, with the option to extend the term
for up to nine additional months (in three-month increments).
After considering the nature of the project, A determines that
it expects to use the crane for only nine months and is therefore
reasonably certain that it will exercise only one of the three
renewal options. Since the lease term is not more than 12
months (in this case 9 months), A would be able to elect the
71. short-term lease exception.
Scenario 2 — Short-Term Lease Criteria Not Met
Company A (lessee) enters into an arrangement to lease a crane
for a six-month period, with the option to extend the term
for up to nine additional months (in three month increments).
The project for which the crane is being used is expected to
take 15 months to complete.
After considering the nature of the project, A determines that it
expects to use the crane for 15 months and is therefore
reasonably certain that it will exercise all three renewal options.
Because the expected lease term is greater than 12 months,
A would not be able to apply the short-term lease exception;
rather, it would be required to record on the balance sheet an
ROU asset and corresponding lease liability.
Definition of a Lease
A contract is, or contains, a lease if the contract gives a
customer the right to control the use of the
identified PP&E (an identified asset) for a period of time in
exchange for consideration. Control is
considered to exist if the customer has both of the following:
• The “right to obtain substantially all of the economic benefits
from use of [an identified] asset.“
• The “right to direct the use of that asset.“
An entity is required at inception to identify whether a contract
is, or contains, a lease. The entity will
only reassess whether the contract is or contains a lease in the
event of a modification to the terms
and conditions of the contract. The inception of a lease is the
72. earlier of the date of an executed lease
agreement or the date of commitment by the parties to the
principal terms and conditions of the lease.
In many cases, the assessment of whether a contract is or
contains a lease will be straightforward.
However, the evaluation will be more complicated when an
arrangement involves both a service
component and a leasing component or when both the customer
and the supplier make decisions
about the use of the underlying asset. Accordingly, the ASU
contains a number of examples of an
entity’s evaluation of whether a contract is or contains a lease
(see ASC 842-10-55-41 through 55-130
in the ASU).
The table below summarizes each key concept related to the
definition of a lease. (See Appendix A for
more information about the definition of a lease.)
7
Concept Requirement5 Observation
Use of an identified asset An asset is typically identified if it is
explicitly
specified in a contract or implicitly specified
at the time the asset is made available for
use by the customer. However, if the supplier
has substantive rights to substitute the asset
throughout the period of use, the asset is not
considered “identified.“
This requirement is similar to the guidance in
73. ASC 840-10-15 (formerly EITF Issue 01-86). An
entity does not need to be able to identify the
particular asset (e.g., by serial number) but must
instead determine whether an identified asset is
needed to fulfil the contract.
An entity will need to use significant judgment
in distinguishing between a lease and a capacity
contract. The standard clarifies that a capacity
portion of an asset is an identified asset if it is
physically distinct (e.g., a floor of a building).
On the other hand, a capacity portion of a
larger asset that is not physically distinct (e.g.,
a percentage of a pipeline) is not an identified
asset unless the portion represents substantially
all of the asset’s capacity.
Substantive substitution
rights
A supplier’s right to substitute an asset is
substantive only if both of the following
conditions apply: (1) the supplier has the
practical ability to substitute alternative assets
throughout the period of use and (2) the
supplier would benefit economically from the
exercise of its right to substitute the asset.
The FASB established this requirement because
it reasoned that if a supplier has a substantive
right to substitute the asset throughout the
period of use, then the supplier — not the
customer — controls the use of the asset.
A contract to use a specified type of rail car
to transport goods is an example of economic
74. benefit from substitution rights. The supplier
benefits from exercise of its right to substitute
because it can use its pool of available rolling
stock in the most efficient manner.
Right to obtain
economic benefits from
use of the identified
asset
To control the use of an identified asset,
a customer must have the right to obtain
substantially all of the economic benefits from
use of the asset throughout the period of use.
The economic benefits from use of an asset
include the primary output and by-products of
the asset as well as other economic benefits
from using the asset that could be realized from
a commercial transaction with a third party.
Right to direct the use of
the identified asset
A customer has the right to direct the use of an
identified asset throughout the period of use if
either (1) the customer has the right to direct
how and for what purpose the asset is used
throughout the period of use or (2) the relevant
decisions about how and for what purpose
the asset is used are predetermined and (a) the
customer has the right to operate (or direct
others to operate) the asset throughout the
period of use and the supplier does not have
the right to change the operating instructions
or (b) the customer designed the asset in a way
75. that predetermines how and for what purpose
the asset will be used.
The relevant rights to be considered are those
that affect the economic benefits derived
from the use of the asset. Some examples of
customers’ rights that meet the definition are (1)
rights to change the type of output produced by
the asset, (2) rights to change when the output
is produced, and (3) rights to change where the
output is produced. On the other hand, rights
that are limited to maintaining or operating the
asset do not grant a right to direct how and for
what purpose the asset is used.
The standard illustrates the concept of directing
use through design of the asset in an example
of a contract to purchase all of the output of a
solar farm. In the example, the FASB concludes
that although the customer makes no decisions
during the life of the farm, it has the right to
direct its use as a result of having designed the
asset before it was constructed.
5 Text is adapted from the ASU.
6 EITF Issue No. 01-8, “Determining Whether an Arrangement
Contains a Lease“ (codified in FASB Accounting Standards
Codification Topic 840,
Leases).
8
76. Lease Classification
An entity is required to determine the classification of a lease
as of the lease commencement date.7
The ASU’s classification criteria apply to both lessees (U.S.
GAAP only)8 and lessors (U.S. GAAP and
IFRSs). The evaluation focuses on whether control of the
underlying asset is effectively transferred to the
lessee (e.g., substantially all of the risks and rewards related to
ownership of the underlying asset are
transferred to the lessee). Therefore, a lease would be classified
as a finance lease (from the standpoint
of a lessee) or a sales-type lease (from the standpoint of a
lessor) if any of the following criteria are met:
• “The lease transfers ownership of the underlying asset to the
lessee by the end of the lease
term.“
• “The lease grants the lessee an option to purchase the
underlying asset that the lessee is
reasonably certain to exercise.“
• “The lease term is for the major part of the remaining
economic life of the underlying asset.“9
• “The present value of the sum of the lease payments and any
residual value guaranteed by the
lessee . . . equals or exceeds substantially all of the fair value of
the underlying asset.“
• “The underlying asset is of such a specialized nature that it is
expected to have no alternative
use to the lessor at the end of the lease term.“
Leases that do not meet any of these criteria (i.e., a lease in
77. which the lessee does not effectively obtain
control of the underlying asset) would be classified as operating
leases by the lessee and as either
operating leases or direct financing leases by the lessor.
Editor’s Note: Under the ASU’s classification criteria, an
arrangement that historically was
classified by a lessor as a sales-type lease because the lessor
transferred a portion of the risks and
rewards of the underlying asset to the lessee and a portion to a
third party through a residual
value guarantee (e.g., residual value insurance) may no longer
qualify as a sales-type lease. In
the evaluation of whether a lease qualifies as a sales-type lease,
the FASB decided to align the
definition of control with its new revenue recognition
requirements. Accordingly, the evaluation
of whether a lease qualifies as a sales-type lease focuses on
whether the lessee effectively obtains
control of the underlying asset rather than whether the lessor
has relinquished control.
If a lease does not meet any of the criteria for classification as a
sales-type lease, the lessor would
still need to assess whether it has relinquished control of the
underlying asset to the lessee and other
parties involved in the transaction. Accordingly, the lessor
would classify a lease that does not meet
any of the criteria for a sales-type lease as a direct financing
lease if (1) the present value of the lease
payments and any residual value guarantee (which could be
provided entirely by a third party or could
consist of a guarantee provided by the lessee along with a third
party guarantee)10 “equals or exceeds
substantially all of the fair value of the underlying asset“ and
(2) it is probable that the lessor will collect
78. the lease payments and any amounts related to the residual
value guarantee(s).
7 Lease commencement is defined as the date a lessor makes
the underlying asset available to a lessee.
8 A lessee is not required to determine the classification of a
lease if the lease is accounted for in accordance with the short-
term scope exception.
See Appendix B for further details.
9 The ASU provides an exception to this lease classification
criteria for leases that commence “at or near the end“ of the
underlying asset’s
economic life. The ASU indicates that a lease that commences
in the final 25 percent of an asset’s economic life is “at or near
the end“ of the
underlying asset’s economic life.
10 If the present value of lease payments plus a lessee-provided
residual value guarantee represents substantially all of the fair
value of the
underlying asset, the lessor would classify the lease as a sales-
type lease.
9
The following flowchart illustrates the classification of a lease
by a lessor:
Does the lease effectively
transfer control of the
underlying asset to the lessee
79. (e.g., substantially all of the risks
and rewards of ownership are
transferred to the lessee)?
Does the lease transfer effective control of the
asset from the lessor (e.g., substantially all of the
risks and rewards of ownership are transferred to
the lessee and other parties), and is it probable
that the lessor will collect all amounts?
Sales-Type
Lease
Direct
Financing
Lease
Operating
Lease
A lessee is not required to reassess its classification of a lease
unless (1) the lease is subsequently
modified and the modification is not accounted for as a separate
contract or (2) there is a change in
the lease term (e.g., there is a change in the assessment of
whether the lessee is reasonably certain to
exercise a renewal option) or a change in the assessment of the
exercise of a purchase option. A lessor
would only reassess its lease classification if the lease is
subsequently modified and the modification is
not accounted for as a separate contract. The accounting
underlying each type of lease is discussed in
greater detail below in the Lessee Accounting and Lessor
80. Accounting sections.
Editor’s Note: While the ASU’s classification criteria are
similar to those in IAS 17, they are
different from the current requirements in U.S. GAAP. As a
result, a lease that would have been
classified as an operating lease may be classified as a finance
lease under the ASU. In addition,
as a reasonable approach to assessing significance, an entity is
permitted to use the bright-line
thresholds that exist under ASC 840 when determining whether
a lease would be classified as a
finance lease.11
In addition, an entity would assess land and other elements in a
real estate lease as separate
lease components unless the accounting result of doing so
would be insignificant. This approach
is consistent with the historical approach under IFRSs, but
represents a change from current
U.S. GAAP guidance, which requires a lessee to account for
land and buildings separately only
when (1) the lease meets either the transfer-of-ownership or
bargain-purchase-price classification
criteria or (2) the fair value of the land is 25 percent or more of
the total fair value of the leased
property at lease inception. This change may result in more
bifurcation of real estate leases into
separate lease elements.
Lease Term
Under the ASU, the lease term, as determined at lease
commencement, is the noncancelable lease
period and any optional periods if (1) it is reasonably certain12
that the lessee will exercise a renewal
81. option or not exercise a termination option or (2) the exercise of
those options is controlled by the
lessor.
11 Under ASC 840, a lease would be classified as a finance
lease if the lease term is 75 percent or more than the remaining
economic life of an
underlying asset or if the sum of the present value of the lease
payments and the present value of any residual value guarantees
amounts to 90
percent or more than the fair value of the underlying asset.
12 The FASB has indicated that “reasonably certain“ is
substantially the same as the “reasonably assured“ threshold
under current U.S. GAAP.
No
NoYes
Yes
10
When assessing the likelihood of a lessee’s exercise of an
option, the lessor and lessee would consider
the following:
• Contract-based factors — The terms of the lease agreement
(e.g., a bargain renewal option,
a contractual requirement for the lessee to incur substantial
costs to restore the asset before
returning it to the lessor).
82. • Asset-based factors — Specific characteristics of the
underlying asset (e.g., the lessee has
installed significant leasehold improvements that would still
have economic value when the
option becomes exercisable or the facility is in a geographically
desirable location with no
other viable locations).
• Entity-specific factors — The historical practice of the entity,
management’s intent, and
common industry practice.
• Market-based factors — Market rentals for comparable assets.
Lessees are required to reassess the lease term when:
• A significant event or change in circumstances occurs that is
directly attributable to and clearly
within the control of the lessee, and the event or change in
circumstances will affect whether
the lessee would be reasonably certain to exercise an option to
extend the lease, purchase the
underlying asset, or terminate the lease.
• A contract term obliges the lessee to exercise (or not exercise)
an option to extend or
terminate the lease.
• The lessee elects to (1) exercise an option to renew that it had
previously determined was not
reasonably certain to be exercised or (2) not exercise an option
to terminate the contract that it
had previously determined was reasonably certain to be
exercised.
Lessors would not be required to reassess the lease term unless
83. the lease is modified and the modified
lease is not a separate contract.
See Appendix B for more information about lease
modifications.
Example 2 — Lessee Reassessment of Lease Term
On June 15, 20Y1, Company A leased a building to be used as a
storage and distribution warehouse for a 10-year term,
with two 5-year renewal options. Company A initially
determined that on the lease commencement date it was not
reasonably certain that it would exercise either of the renewal
options and therefore concluded that the lease term was 10
years.
Scenario 1 — Term Reassessment Would Not Be Required
On January 15, 20Y5, the city in which the warehouse is located
significantly improved its highway system, thereby making
the warehouse location more desirable for A’s distribution
needs. This by itself would not result in the need for A to
reassess
whether it will exercise any remaining renewal options since the
significant event or change in circumstances was outside of
A’s control.
Scenario 2 — Term Reassessment Would Be Required
On January 15, 20Y5, A installed leasehold improvements with
a 10-year estimated useful life. The cost of the improvements
was significant, and A is now reasonably certain to exercise at
least one of its renewal options to avoid losing the value
associated with the improvements. In this case, since the change
in circumstances is directly attributable to A’s actions,
reassessment would be required.
84. Lease Payments
In the calculation of a lessee’s lease obligation and ROU asset
or a lessor’s net investment in the lease,
the lease payments are measured as the total of (1) fixed
payments, including in-substance fixed
payments; (2) variable payments based on an index or a rate; (3)
amounts that it is probable a lessee
will owe under a residual value guarantee (lessee) or the amount
of the residual value guarantee
(lessor); and (4) payments related to purchase or termination
options that the lessee is reasonably
certain to exercise. In addition, in measuring the ROU asset, the
lessee would adjust its lease payments
for any lease incentives that are paid or payable.
11
Fixed Payments, Including In-Substance Fixed Payments
Fixed payments are payments that are specified in the lease
agreement and fixed over the lease term.
Fixed payments also include variable lease payments that are
considered in-substance fixed payments
(e.g., a variable payment that includes a floor or a minimum
amount).
Editor’s Note: Even if a variable lease payment is virtually
certain (e.g., a variable payment
for highly predictable output from a solar farm or a variable
payment if a retail store meets a
nominal sales volume), such a payment would not be considered
an in-substance fixed payment.
85. Therefore, it would not be included in the determination of a
lessee’s lease obligation and ROU
asset or a lessor’s net investment in the lease.
Variable Lease Payments
An entity would include variable lease payments that depend on
an index or a rate in the initial
measurement of the lease liability and ROU asset (lessee) or the
net investment in the lease (lessor) by
using the spot index or rate at lease commencement. By
contrast, the entity would not include variable
lease payments based on usage or performance of the asset. A
lessee would recognize any variable
payments not included in the original lease obligation as an
expense in the period the obligation is
incurred.13 A lessor would recognize variable lease payments
not included in the original net investment
in the lease in the period a change occurs in the facts and
circumstances on which the variable lease
payments are based (e.g., “when the lessee’s sales on which the
amount of the variable payment
depends occur“).
A lessee is required to reassess variable lease payments when
the lease liability is remeasured as a result
of the following:
• The lease is modified and the modification is not treated as a
separate contract.
• A contingency upon which a variable lease payment that is
excluded from the measurement
of lease payments becomes resolved such that the variable
payment will now be included in
the measurement of the lease payments (e.g., a variable lease
86. payment that is based on a sales
target subsequently converts to a fixed lease payment).
• There is a change in:
o The lease term.
o The assessment of whether the lessee will exercise a purchase
option.
o The amount that it is probable the lessee will owe under a
residual value guarantee.
Any changes related to future periods would result in an
adjustment to the lease obligation and ROU
asset. A lessor is not required to reassess variable lease
payments unless the lease is modified and the
modification is not accounted for as a separate contract.
13 The period in which the obligation is “incurred“ refers to
the period when it becomes probable that the specified target
that triggers the variable
lease payments will be achieved.
12
Editor’s Note: While the FASB aligned many of the lessor
accounting requirements with the
new revenue guidance in ASC 606, the treatment of variable
consideration under the two
models differs significantly. Under ASC 606, variable revenues
are estimated and included in
the transaction price subject to a constraint, whereas under the
leases standard, variable lease
87. payments would generally be excluded from the determination
of a lessor’s lease receivable.
Accordingly, there is a possibility that direct financing leases or
sales-type leases that have a
significant variable component may result in inception losses
for the lessor if the lease receivable
plus the unguaranteed residual asset is less than the net carrying
value of the underlying asset
being leased. This could occur if payments on a lease of, for
example, a solar farm are based
entirely on the production of electricity (i.e., 100 percent
variable). Since many feel that this
outcome does not faithfully represent the economics of these
transactions, we are considering
other possible approaches to applying the new standard to such
contracts, including the use
of a negative discount rate, which would avoid the inception
loss. Lessors that are affected by
this issue should consult with their professional advisers and
monitor developments during the
implementation phase of the ASU.
Example 3 — Variable Lease Payments
On January 1, 20Y1, Company A leased a building for five
years, payable in annual lease payments of $100,000 at the
beginning of each year. The lease is classified as an operating
lease and contains a provision that on December 31 of each
year, the lease payments will be adjusted by the change in the
CPI for the preceding 12 months. At lease commencement,
the CPI is 112. The implicit rate in the lease is not known, and
A’s incremental borrowing rate is 7 percent. Any initial direct
costs and lease incentives are ignored in this example.
Determining the Lease Payments
88. At lease commencement, A makes its first annual payment of
$100,000. In addition, A records a lease liability of $338,721
(the present value of the total remaining lease payments
discounted at the incremental borrowing rate) and an ROU asset
of $438,721 (the total of the lease liability plus the prepaid rent
of $100,000). In measuring these amounts, A did not take
into consideration the CPI in effect at lease commencement
because the rent increase is based on a change in an index as
opposed to the index itself.
On December 31, 20Y1 (the lease payment reset date), the CPI
has changed to 126, representing a 12.5 percent increase
(i.e., calculated as [(126 – 112) ÷ 112]). Accordingly, A’s lease
payment in year 2 would be $112,500, comprising the fixed
amount of $100,000 and the variable amount of $12,500
(calculated as the change in CPI multiplied by the fixed
amount).
Further, because A was not required to remeasure its lease
liability for any other reason (e.g., a modification), there would
be no adjustment to the liability to reflect changes in the CPI.
That is, incremental amounts that will be paid in the future
because of changes in the CPI would also be recognized as
variable lease payments in the period the amounts are paid.
Had the rental increases been based on an index (as opposed to
a change in an index), the current — or spot — value of
the index would have been used to measure the initial lease
liability and ROU asset. Changes in the index over the lease
term
would result in variable lease payments and would not require
revision of the lease liability or ROU asset unless the lease is
reassessed for other reasons.
Residual Value Guarantees
The ASU defines a residual value guarantee as a “guarantee
89. made to a lessor that the value of an
underlying asset returned to the lessor at the end of a lease will
be at least a specified amount.“ Under
current U.S. GAAP, a lessee includes in its minimum lease
payments the entire amount of the residual
value guarantee, whereas under the ASU, a lessee only includes
those amounts that it is probable
will be owed under the residual value guarantee at the end of
the lease term. A lessee is required to
remeasure lease payments when there is a change in the amount
that it is probable will be owed by the
lessee under a residual value guarantee. Revised lease payments
would reflect changes in the amounts
that it is probable will be owed by the lessee under residual
value guarantees and would be recognized
as an adjustment to the lease liability and the ROU asset.
13
A lessor would include in its lease receivable the full amount at
which the residual asset is guaranteed
by the lessee or a third party. Unlike a lessee, the lessor would
not reflect any changes in the residual
value in its lease receivable. However, changes in the
unguaranteed residual value would be considered
in the overall assessment of whether the net investment in the
lease is impaired.
Example 4 — Residual Value Guarantee
A lessor leases equipment to a lessee for five years at $10,000
per year. The lessee guarantees that the equipment will
have a residual value of at least $9,000 at the end of the lease.
The expected residual value at the end of the lease term is
90. $20,000.
Lessee Accounting
In its lease payment calculation, the lessee would only include
the amount that it is probable it will owe under the
residual value guarantee at the end of the lease term.
Accordingly, the lessee would not include any amount in the
initial
measurement of the lease liability and ROU asset, because the
expected residual value is greater than the guaranteed
amount. However, if the expected residual value of the asset
subsequently decreased (e.g., to $4,000) and, accordingly, the
lessee now believes that it is probable that it will make a
payment under the residual value guarantee, the lessee would
need
to adjust the lease liability and the ROU asset to reflect the
present value of the $5,000 expected to be owed.
Lessor Accounting
In the calculation of its lease receivable, the lessor would
include the portion of the residual asset that is guaranteed by
the lessee (or any other party). Accordingly, in addition to the
present value of the five annual lease payments of $10,000,
the lessor would include the present value of the $9,000
guaranteed amount in its calculation of the lease receivable. The
lessor’s net investment in the lease would consist of the total
receivable (including the residual value guarantee) and the
present value of the unguaranteed residual asset of $11,000. The
lessor would not make any subsequent adjustments to its
net investment in the lease for changes in the guaranteed
residual value. However, changes in the unguaranteed residual
value would be considered in the overall assessment of whether
the net investment in the lease is impaired.
91. Editor’s Note: As discussed above, under the new standard a
lessee would include in its lease
payments only those amounts related to a residual value
guarantee that it is probable the lessee
will owe at the end of the lease term. Lease arrangements (such
as a synthetic lease arrangement)
in which a significant portion of the lease payments are
structured as a residual value guarantee
could therefore result in ROU assets and lease liabilities that
are significantly lower than those in
arrangements in which more of the lessee’s obligation takes the
form of rents. For example, since
many real estate assets are expected to hold their value over the
lease term, amounts that it is
probable the lessee will owe under residual value guarantees
may be nominal. Accordingly, while
these arrangements will be brought onto the balance sheet,
synthetic leases and other lease
arrangements in which a significant portion of lease payments
are structured as a residual value
guarantee may continue to yield favorable accounting results
(e.g., reduced leverage) under the
new leasing guidance.
Discount Rate
Under the ASU, the discount rate used by a lessee and a lessor
is based on the information available as
of the lease commencement date. A lessee should use the rate
that the lessor charges in the lease (i.e.,
the rate implicit in the lease) if that rate is readily determinable.
If the rate is not readily determinable,
which is generally expected, the lessee should use its
incremental borrowing rate as of the date of
lease commencement. Lessors should use the rate they charge
the lessee (i.e., the rate implicit in the
92. lease) and are not required to reassess the discount rate used
when there is a change in lease term. The
discount rate must be updated by the lessee if there is a
remeasurement of the lease liability unless the
remeasurement results from changes in one of the following:
• The lease term or the assessment of whether a purchase option
will be exercised, and the
discount rate already reflects the lessee’s option to extend or
terminate the lease or purchase
the asset.
14
• Amounts that it is probable the lessee will owe under a
residual value guarantee.
• Lease payments resulting from the resolution of a contingency
upon which some or all of the
variable lease payments are based.
When there is a modification that does not result in a separate
contract, a lessee and lessor would,
in certain instances, be required to reassess the discount rate
used when accounting for the modified
lease. See the Lease Modifications section in Appendix B.
When measuring their lease liabilities, nonpublic business
entities are permitted to make an accounting
policy election to use the risk-free discount rate for all leases in
lieu of their incremental borrowing rate.
Using the risk-free rate would result in a larger lease liability
and ROU asset.