THE NEW LEASE ACCOUNTING STANDARD - BDO …...– FASB has proposed a similar practical expedient...

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THE NEW LEASE

ACCOUNTING STANDARD

May 30, 2018

BDO KNOWLEDGE / The New Lease Accounting Standard2

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With You Today

ANGELA NEWELLNational Accounting Partner

600 N. Pearl St. Suite 1800(214) 689-5669 [email protected]

JIN KOONational Accounting Partner

600 N. Pearl St. Suite 1800(214) 243-2941 [email protected]


LEARNING OBJECTIVES

Upon completion of this program, participants will be able to:

• Identify the main provisions of the new lease standard as contrasted with

prior accounting requirements

• Identify financial statement presentation and disclosures required by the new

lease standard

• Recognize operational impact of the new standard


AGENDA

• Introduction

• Scope and Identifying a Lease

• Lease Classification and Payments

• Lessee Accounting and Presentation

• Lessor Accounting and Presentation

• Sale-Leaseback Transactions

• Disclosures

• Transition

7 BDO KNOWLEDGE / The New Lease Accounting Standard

Introduction The New Leasing Standard


Introduction

• ASU 2016-02, Leases (Topic 842) issued February 2016

• Dual approach for lessees and lessors

• Effective dates (early adoption permitted):Public Business Entities All Other Entities

FYs beginning after 12/15/18

(and interim periods within)

FYs beginning after 12/15/19

(interim periods within FYs beginning after 12/15/20)


Introduction

Lessees

Right of use model – recognize ROU asset and lease liability at inception

for all leases

– Optional exemption for leases with terms < 12 months

Classify all leases as finance or operating (5 criteria)

– Finance lease – lessee effectively obtains control of underlying asset

– Operating lease – lessee does not effectively obtain control of underlying

asset

Similar balance sheet impact; different income statement and cash flow

results


Introduction

Lessors

Classify all leases as sales-type, direct finance, or operating (similar to

existing U.S. GAAP) based on same criteria as lessees, plus a few others

– Sales-type lease - transfers all risks and rewards, plus control of underlying

asset, to lessee

– Direct financing – transfers risks and rewards but not control

– Operating – does not transfer risks and rewards or control

Subsequent accounting is consistent with existing U.S. GAAP*

Control principle aligned with new revenue standard

* Leveraged lease treatment no longer available for new leases


Scope and Identifying a Lease The New Leasing Standard


Scope

Applies to all leases and subleases, except:

– Leases of intangible assets (Topic 350)

– Leases for exploration or use of certain natural resources (Topics 930 & 932)

– Leases of biological assets (Topic 905)

– Leases of inventory (Topic 330)

– Leases of assets under construction (Topic 360)

Scope exception for short-term leases (term less than 12 months)

Separation of non-lease components


Identifying a Lease

Lease

A contract, or part of a contract, that conveys the right to control the

use of identified property, plant, or equipment (an identified asset) for

a period of time in exchange for consideration

Determine at inception based upon:

Whether contract fulfillment depends on use of an identified asset*

Whether contract conveys right to control use of identified asset for

consideration for a time period

* Consider whether supplier has substantive right of substitution


Identifying a Lease

Right to control use of the identified asset depends upon:

– Right to obtain economic benefits from the use of the identified asset (e.g.,

through using, holding, or subleasing the asset).

• “Economic benefits” is fairly broad

• Consider within defined scope of customer’s contractual right to use the

asset

– Right to direct the use of an identified asset. This exists when customer has

the right to direct how and for what purpose the asset is used, including the

right to change how and for what purpose the asset is used, throughout the

period of use.


Multiple Arrangements

• Contract combinations: multiple contracts should be combined when

entered into with the same counterparty if:

– The contracts are negotiated as a package

– The price in one depends on the other

– Underlying assets conveyed by the contracts are a single lease component

• Non-lease components: if an arrangement contains both lease and non-

lease components, they must be accounted for separately

– Lessees can elect a practical expedient to combine and account for as one

lease

– FASB has proposed a similar practical expedient for lessors


Lease Classification and PaymentsThe New Leasing Standard


Lease Classification

Five criteria for finance lease (lessee) / sales-type lease (lessor):

1. Transfer of ownership of underlying asset to lessee by end of lease term

2. Option to purchase underlying asset that lessee is reasonably certain to

exercise

3. Lease term = major part of remaining economic life of underlying asset

4. Sum of PV lease payments and PV any residual value guaranteed by lessee ≥

substantially all of the FV of underlying asset

5. Underlying asset is of such a specialized nature that it is expected to have no

alternative use to lessor at end of lease term

If one or more of the above are met, classify as finance/sales-type lease.


Lease Classification

When none of the first five criteria are met, two other criteria for direct

financing classification should be evaluated (lessor):

1. PV of lease payments + residual value guarantee by third party equals

or exceeds substantially all of underlying asset FV.

2. It is probable that lessor will collect lease payments plus residual value

guarantee.

Both of the above criteria must be met for a lessor to classify as direct

financing. Otherwise, classify as an operating lease.


Short-Term Leases

Two criteria for short-term leases:

• Lease term of 12 months or less

• No option to purchase underlying asset that lessee is reasonably certain to

exercise

If short-term lease, lessee can elect not to apply recognition requirements (no

balance sheet gross-up for ROU asset and related lease liability)

• Recognize lease payments in P&L on straight-line basis

• Recognize variable lease payments as they are incurred

Accounting policy must be made by class of underlying asset and be disclosed


Lease Term and Payments

Lease Term

Estimated as the non-cancellable period

of the lease

Include periods under option to extend IF

lessee is reasonably certain to exercise

option

Include periods under option to terminate

IF lessee has is reasonably certain NOT to

exercise option

Same analysis for purchase options

Lease Payments (Rentals)

Fixed lease payments (less incentives to

be paid by lessor)

Variable payments tied to an index

Variable payments which are in-substance

fixed payments

Residual value guarantees (probable

amount)

Exercise price of purchase option IF

lessee is reasonably certain to exercise

option

Termination penalties IF lease term

reflects lessee exercising option

Fees paid to structure an SPE

Two elements form basis for PV of lease payments:


Lease Term

• Reasonably certain is a high threshold substantially the same as

reasonably assured in existing U.S. GAAP.

• Includes assessment of economic incentives.

• Reassess the lease term only upon the occurrence of a significant event

or change in circumstances that are within the control of the lessee.


Lease Payments

• Variable payments:

‐ Day 1 - include index-based payments (e.g., CPI escalator)

measurement based on the rate at commencement.

‐ Day 2 - only reassess when the lease liability is reassessed for other

reasons (e.g., contract modification). Otherwise, changes in the

index are period expenses.

• In-substance fixed payments are included in Day 1 lease liability,

consistent with current practice.

• Discount rate - use the rate implicit in the lease if determinable,

otherwise use incremental borrowing rate.

‐ Nonpublic entities – policy election to use risk-free rate


Initial Direct CostsInclude:

• Commissions

• Payments made to an existing tenant as an incentive to terminate its lease

Do not include costs to negotiate or arrange a lease that would have been incurred

regardless of whether the lease was obtained, such as:

• General overhead costs

• Examples: depreciation, occupancy and equipment costs, unsuccessful origination

efforts, and idle time

• Costs related to activities performed by the lessor for advertising, soliciting potential

lessees, servicing existing leases, or other ancillary activities

• Costs related to activities that occur before the lease is obtained

• Examples: costs of obtaining tax or legal advice, negotiating lease terms and

conditions, or evaluating a prospective lessee’s financial condition


Lessee Accounting and PresentationThe New Leasing Standard


Lessee Accounting


Lessee Accounting

Balance Sheet

All leases:

Present separately* or within similar

classes of assets and liabilities with

proper disclosure

*No co-mingling of finance and

operating leases

Income Statement

Finance: Display interest on lease

liability and amortization of ROU

asset consistently with other

interest and amortization

expenses (combine or separate)

Operating: Display interest on

lease liability together with

amortization of ROU asset, within

income from continuing

operations

Presentation for LESSEES:


Lessee Accounting

Statement of Cash Flows

Operating activities

‐ Interest on lease liability arising from finance leases*

‐ Payments arising from operating leases

‐ Variable lease payments and S/T lease payments not included in

lease liability

Financing activities

‐ Principal repayments on finance leases

*the requirement is to present consistent with Topic 230, which generally will result in

operating classification

Presentation for LESSEES:


Lease Modification

• Any change to contractual terms and conditions of a lease that was not

part of the original terms and conditions of a lease

– New lease: additional right of use priced on a standalone basis

– Generally require adjustment to lease asset and liability without affecting P&L

– Exception is a reduction of the lease’s scope which would reduce lease asset and

liability proportionately, with any difference recognized in P&L

– Modified lease: change in terms with no additional right of use or additional

right of use not consistent with standalone value

– Reassess classification as of date of modification


Lessor Accounting and PresentationThe New Leasing Standard


Lessor AccountingSales-Type Lease


Lessor AccountingDirect Financing Lease


Lessor Accounting

Operating Lease


Lease Receivable

Measure at present value, discounted using rate implicit in lease:

1. Future lease payments, and

2. Amount lessor expects to derive from residual asset guarantee

Lease Receivable

A lessor’s right to receive lease payments arising from a sales-type lease or a

direct financing lease plus any amount that a lessor expects to derive from

the underlying asset following the end of the lease term to the extent that it

is guaranteed by the lessee or any other third party unrelated to the lessor,

measured on a discounted basis.


Collectibility Not Assured at Commencement

Sales-type lease

• Do not derecognize underlying asset

• Defer selling profit

Direct financing lease

• Treat as operating lease

Operating Lease

– Lesser of straight line or lease payments collected


Sale-Leaseback TransactionsThe New Leasing Standard


SALE-LEASEBACK TRANSACTIONS

ASC 842 simplifies requirements for sales accounting

through reference to ASC 606

– Deletes detailed continuing involvement guidance

– Must meet control criteria in 606

Replaces details and complexity with judgment

Generally expect more transactions to qualify for sales

accounting

2016 BDO Alliance USA Conference: THE NEW LEASE ACCOUNTING STANDARD

Note: Sale-leaseback accounting now also applies to lessors, so a

failed sale-leaseback now results in the buyer-lessor recognizing a

receivable rather than a fixed asset.



Do you have a sale?

1. Do you meet the criteria in ASC 606-10-25-1 through 25-8 on

existence of a contract?

2. Has control been transferred pursuant to ASC 606-10-25-30?

– Factors to consider:

a. Seller-lessee has a present right to payment

b. Buyer-lessor has legal title to asset

c. Seller-lessee has transferred physical possession of asset

d. Buyer-lessor has significant risks and rewards of ownership

e. Buyer-lessor has accepted the asset

– No one factor is determinative




Do you have a sale?

3. Will the leaseback be classified as a finance lease

(seller-lessee) or a sales-type lease (buyer-lessor)?

– Buyer-lessor has not obtained control – no sales accounting

4. Does seller-lessee have an option to repurchase the

asset, other than when:

– Exercise price is at fair value at time of exercise

– Substantially the same alternative assets are readily available in the

market – would not apply to land/building




Do you have a sale? - YES

Seller-lessee:

Recognize transaction price in accordance with guidance

in ASC 606-10-32-2 through 32-27

Derecognize carrying amount of underlying asset

Account for lease in accordance with ASC 842-20

Buyer-lessor:

Account for purchase in accordance with other GAAP

Account for lease in accordance with ASC 842-30




Do you have a sale? - NO

Seller-lessee:

Continue to recognize carrying amount of underlying

asset

Account for amounts received as financial liability in

accordance with other GAAP

Buyer-lessor:

Do not recognize transferred asset

Account for amounts paid as receivable in accordance

with other GAAP



DisclosuresThe New Leasing Standard


Disclosure Objectives

To enable users of financial statements to assess

Amount

Timing and

Uncertainty of cash flows arising from leases.


LESSEE DISCLOSURES• Contractual details (lease term, contingent rentals, options, etc.) and related accounting judgments*

• Information about significant leases that have not yet commenced

• Information about lease liabilities separately for operating and finance leases:

• Maturity analyses of undiscounted lease payments

• Weighted-average remaining lease term

• Weighted-average discount rate

• Cash flows and supplemental noncash information

• Amounts related to lease cost (including any amounts capitalized) and related cash flows, separately

for operating and finance leases

• If practical expedients related to short-term leases and separation of lease and non-lease components

elected, disclose that fact and related details

• Format:

• No specific format required; ASU provides example in tabular format

• Judgment required to determine appropriate level of aggregation or disaggregation

* Also disclose this information about subleases if applicable



LESSOR DISCLOSURES

Contractual details (lease term, contingent rentals, options, etc.) and related

accounting judgments

Narrative disclosures about leases (including information about variable lease

payments and options)

Tabular presentation of:

– Profit or loss at commencement (sales-type and direct financing)

– Interest income on receivables and residual assets (sales-type and direct

financing)

– Lease income (operating)

Maturity analysis of lease receivables (sales-type and direct financing) or lease

payments (operating)

Narrative disclosure about risk management for residual assets



SAB 74 DISCLOSURES

AT&T Q1 201810-Q:

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," as modified (ASC

842), which replaces existing leasing rules with a comprehensive lease measurement and

recognition standard and expanded disclosure requirements. ASC 842 will require lessees to

recognize most leases on their balance sheets as liabilities, with corresponding "right-of-use"

assets, and is effective for annual reporting periods beginning after December 15, 2018,

subject to early adoption. For income statement recognition purposes, leases will be

classified as either a finance or an operating lease without relying upon the bright-line tests

under current GAAP.

Upon initial evaluation, we believe the key change upon adoption will be the balance

sheet recognition. At adoption, we will recognize a right-to-use asset and

corresponding lease liability on our consolidated balance sheets. The income statement

recognition of lease expense appears similar to our current methodology. We are

continuing to evaluate the magnitude and other potential impacts to our financial

statements.



SAB 74 DISCLOSURES

American Airlines Group Q1 201810-Q:

Leases (Topic 842) (the New Lease Standard)

The New Lease Standard requires lessees to recognize a lease liability and a right-of-use

asset on the balance sheet and aligns many of the underlying principles of the new lessor

model with those in the New Revenue Standard. The New Lease Standard is effective for

fiscal years beginning after December 15, 2018, including interim periods within those fiscal

years. Early adoption is permitted. We will adopt the New Lease Standard effective January

1, 2019.

We are currently evaluating how the adoption of the New Lease Standard will impact

our consolidated financial statements. Interpretations are on-going and could have a

material impact on our implementation. Currently, we expect that the adoption of the

New Lease Standard will have a material impact on our consolidated balance sheet due

to the recognition of right-of-use assets and lease liabilities principally for certain

leases currently accounted for as operating leases.



SAB 74 DISCLOSURES

Starbucks Q2 2018 10-Q:

In February 2016, the FASB issued guidance on the recognition and measurement of leases.

Under the new guidance, lessees are required to recognize a lease liability, which represents

the discounted obligation to make future minimum lease payments, and a corresponding

right-of-use asset on the balance sheet for most leases. The guidance retains the current

accounting for lessors and does not make significant changes to the recognition,

measurement, and presentation of expenses and cash flows by a lessee. Enhanced

disclosures will also be required to give financial statement users the ability to assess the

amount, timing and uncertainty of cash flows arising from leases. The guidance will require

modified retrospective application at the beginning of our first quarter of fiscal 2020, with

optional practical expedients, but permits adoption in an earlier period.

We are currently evaluating the impact this guidance will have on our consolidated

financial statements. We expect this adoption will result in a material increase in the

assets and liabilities on our consolidated balance sheets but will likely have an

insignificant impact on our consolidated statements of earnings. In preparation for the

adoption of the guidance, we are in the process of implementing controls and key

system changes to enable the preparation of financial information.



SAB 74 DISCLOSURES

American Tower Corp Q1 201810-Q:

In February 2016, the FASB issued new guidance on the accounting for leases. The guidance

amends the existing accounting standards for lease accounting, including the requirement

that lessees recognize right of use assets and lease liabilities for leases with terms greater

than twelve months in the statement of financial position. Under the new guidance, lessor

accounting is largely unchanged. This guidance is effective for fiscal years, and for interim

periods within those fiscal years, beginning after December 15, 2018.

The Company (i) has established a multidisciplinary team to assess and implement the

new guidance, (ii) expects the guidance to have a material impact on its consolidated

balance sheets due to the recording of right of use assets and lease liabilities for leases

in which it is a lessee and which it currently treats as operating leases and (iii)

continues to evaluate the impact of the new guidance.



TransitionThe New Leasing Standard


Transition

Lessee & lessor transition

• Modified retrospective approach with hindsight allowed for evaluating renewal

and purchase options on existing leases. No option for full retrospective.

• Significant relief provisions allowed as a policy election – No reassessment of:

‐ Whether any expired or existing contracts are or contain leases

‐ Classification for any expired or existing leases

‐ Initial direct costs for expired or existing leases

• Leveraged lease treatment grandfathered

Sale-leaseback transition

• No reassessment of initial sale/leaseback conclusions

• Specific transition for deferred gains (or losses) related to capital or operating

leases


Transition Considerations

Developing a plan to transition, including impacts on:

ICFR

Planning and budgeting

Taxes

Compensation arrangements

Debt covenants and other contracts

Internal and external communication

IT systems/data management

Lease structure strategy


IMPLEMENTATION CONSIDERATIONS

WHAT DO I DO FIRST?

Inventory existing leases – what is the source for your five-year

maturities table?

Determine existing system resources

– Do you currently use a lease management system?

– Does that system currently have the ability to account for rent expense on a

straight-line basis (whether or not you are using it)?

Have you talked to the vendor about their plans to become compliant with

the new standard?

If no system in place, determine whether you need to implement one

– How many leases and how complex?

– Other stakeholders (facilities management, etc.)

– Budget constraints




AND THEN WHAT?

Talk to lease management team

– Explain provisions of standard

Talk to CFO/Finance team

– If enter into long-term leases, consider whether finance lease treatment

would be a better result (P&L impact outside EBITDA)

– If so, communicate change in lease strategy to lease negotiators

Consider other stakeholders and their needs

– Review debt covenants for lease treatment, communicate with Treasury

team

– Discuss impact of any change in lease negotiation strategy with investor

relations and HR (consider impact to bonus plans)




I’VE CHOSEN A SYSTEM, NOW WHAT?

Work with IT to finalize an implementation plan

– Ensure appropriate connectivity with general ledger and AP modules

– Consider testing procedures, identify testing team

Work with Internal Audit to update controls documentation

– Consider implementation controls, both from an accounting and an IT

perspective

– Document new control environment post implementation

Determine transition approach

– Transition practical expedients may result in lack of comparability between

accounting for pre-existing leases vs. new leases entered into post-adoption



Questions?


RESOURCES / REFERENCES

BDO Knows: Topic 842, Leases

https://www.bdo.com/insights/as

surance/fasb/fasb-newsletter-

july-2016

BDO Knowledge Webinar (Self study):

https://www.bdo.com/events/th

e-new-lease-accounting-

standard

BDO Alert:

https://www.bdo.com/insights/as

surance/fasb/fasb-flash-report-

march-2016

https://www.bdo.com/insights/assurance/fasb/fasb-newsletter-july-2016

https://www.bdo.com/events/the-new-lease-accounting-standard

https://www.bdo.com/insights/assurance/fasb/fasb-flash-report-march-2016


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Appendix - ExamplesThe New Leasing Standard


Identifying a Lease: Fiber Optic Cables

Customer enters into a 15-year contract with a utilities

company (Supplier) for the right to use three specified,

physically distinct dark fibers within a larger cable

connecting New York to London.

Customer makes all of the decisions about the use of the

fibers by connecting each end of the fibers to its

electronics equipment (i.e. Customer ‘lights’ the fibers).

The arrangement contains a lease.


Identifying a Lease: Fiber Optic Cables

Customer enters into a 15-year contract with Supplier for

the right to use a specified amount of capacity within a

cable connecting New York to London.

The specified amount is equivalent to Customer having the

use of the full capacity of three fiber strands within the

cable (the cable contains 15 fibers with similar capacities).

The arrangement does NOT contain a lease.


Lease Term and Payments: Retail Store

Retailer enters into a 5-year lease agreement with a mall

operator that includes three 5-year renewal options. Rent

payments are $5,000/month plus 1% of sales during the

initial term, with base rent growing 10% in each renewal

period.

Retailer incurs costs of $100,000 installing leasehold

improvements to customize space to its brand

requirements. LHI has a useful life of 8 years.


Lease Term and Payments: Retail Store

The existence of significant leasehold improvements with a useful live longer

than the base lease term indicates that Retailer would incur an economic loss

from not exercising the first renewal option.

Lease term is 10 years, base term plus one renewal period.

Percentage rent is variable, and thus is not included in lease payments. Instead

expensed as incurred.

Lease payments total $630,000 ($300k for base + $330k for renewal).


Lessee Accounting Example

Facts:

• 10-year lease, option to extend 5 years

• LP = $50K/year (initial term); $55K/year (optional period)

• Not reasonably certain to exercise option to extend, therefore,

lease term = 10 years

• Payments due at beginning of each year

• Initial direct costs (IDC) = $15K

• Lessee’s incremental borrowing rate = 5.87%

• PV of remaining LP after payment of 1st year rental & IDC =

$342,017


Lessee Accounting Example (Continued)

Journal entry to record lease assets & liabilities at commencement:

Right-of-use asset 407,017

Lease liability 342,017

Cash (lease payment for year 1) 50,000

Cash (initial direct costs) 15,000



Journal entry to recognize lease expense during 1st year, if finance:

1. Calculated as (5.87% × 342,017)

2. Calculated as (407,017 ÷ 10)

Interest expense 20,076 1

Lease liability 20,076

Amortization expense 40,702 2

Right-of-use asset 40,702



Journal entry to recognize lease expense during 1st year, if operating:

1. Calculated as [(500,000+15,000) ÷ 10]

2. Calculated as (5.87% × 342,017)

3. Calculated as (51,500-20,076)

Lease expense 51,500 1

Lease liability 20,076 2

Right-of-use asset 31,424 3


Lessee accounting example (Continued)

Total lease expense recognized over life of lease – Finance vs. Operating

(in $000s, approximate)

0

10

20

30

40

50

60

70

Year 1 Year 9

Finance

Operating


Lease Modification: Office Space

A company leases one floor of an office building, which it uses to

house its headquarters. The lease commences on 1/1/2016, has a

term of 10 years, and a price of $70/ft2.

The company experiences tremendous growth, so that on 1/1/2018,

it modifies the lease to include an additional 6,000 ft2 on a second

floor of the building. The price for the new space is $80/ft2, the

then current market price. The term remains unchanged.

The modification results in a new lease. Recognize new ROU asset and

lease liability.


Lease Modification: Office Space

Same facts as last example, except that the lease was modified to

reprice the entire space (existing floor plus new 6,000 ft2) at $75/

ft2, and the term of the combined lease was extended for an

additional five years.

The modification results in a modified lease. Remeasure lease liability

on 1/1/2018 based on the new terms. Recognize difference between

remeasured lease liability and carrying value of existing lease liability

as adjustment to ROU asset. Operating or finance classification should

also be reassessed.



Facts:

Seller sells asset to unrelated buyer for cash of $2M

Immediately before transaction asset had carrying value of $1.8M

and remaining useful life of 21 years

At same time, seller enters into contract with buyer to lease back

the asset for 8 years with annual payments of $200,000 in arrears

Contract includes option for seller to repurchase asset at end of

year 5 for $800,000

Seller’s incremental borrowing rate is 4%

Existence of fixed price repurchase option precludes sales

accounting



Accounting treatment:

Seller-lessee at inception:

Dr. Cash $2,000,000

Cr. Financing liability $2,000,000

Buyer-lessor at inception:

Dr. Financing receivable $2,000,000

Cr. Cash $2,000,000


SALE-LEASEBACK TRANSACTIONSAccounting treatment:

Seller-lessee subsequent to initial recognition:

End of Year 1:

Dr. Interest expense $84,600*

Dr. Financing liability $115,400

Cr. Cash $200,000

Dr. Depreciation expense $85,714**

Cr. Accumulated depr $85,714

*Interest expense calculated based on imputed interest rate of 4.23% to ensure

that carrying amount of asset will not exceed financial liability at end of year 5

when repurchase option expires.

** Asset continues to depreciate over remaining life of 21 years.




Buyer-lessor subsequent to initial recognition

Dr. Cash $200,000

Cr. Financing receivable $120,000

Cr. Interest income $80,000*

*Buyer continues to use seller’s incremental borrowing rate to recognize interest

expense as this represents a market rate..



Facts, end of year 5:

Repurchase option expires unexercised

No other factor precludes sales accounting treatment

Leaseback classified as operating lease

Seller-lessee derecognizes asset and financing liability, recognizes

ROU asset and lease liability

Buyer-lessor derecognizes lease receivable, recognizes asset




Seller-lessee at end of year 5:

Dr. Financing liability $1,372,077

Cr. Asset $1,371,429

Cr. Gain on sale $648

Dr. ROU asset $555,018

Cr. Lease liability $555,018*

* Present value of annual lease payments of $200,000 for remaining lease term (3

years) discounted at incremental borrowing rate at inception of lease of 4%




Buyer-lessor at end of year 5:

Dr. Asset $1,350,041

Cr. Lease receivable $1,350,041

THE NEW LEASE ACCOUNTING STANDARD - BDO …...– FASB has proposed a similar practical expedient...

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Transcript of THE NEW LEASE ACCOUNTING STANDARD - BDO …...– FASB has proposed a similar practical expedient...