Question

In: Accounting

Impact of Financial Accounting Standards Board (FASB) Accounting Standards Update ASU 2016-02 Leases

Impact of Financial Accounting Standards Board (FASB) Accounting Standards Update ASU 2016-02 Leases

Solutions

Expert Solution

The update is the recognition of a right to use asset and lease liability on the financial statement for the leases which are previously identified as operating lease under the old one.

It have two main classification of lease

1.Financial Lease

2.Operating lease

The criteria to determine such classification is essentially the same but it is more subjective.The leasee would classify the lease as finance lease of the following conditions are met.

  • The lease transfers the ownership of the underlying asset to the leasee by end of the lease term
  • The lease grants the leasee an option to purchase the underlying asset the leasee is reasonable to exercise.
  • The lease term for the major part of the remaining economic life of the underlying asset.
  • The PV of sum of lease payments and residual value guarnteed by the leasee equals or exceeds the substantial all of the fair value of the underlying asset
  • The underlying asset is of such specilaised nature that there is no expected alternative use to the leasor at the end of the term.

The update is effective for fiscal years beginning after Dec 15 ,2018 for any of the following

  • a Public business entity
  • A not for profit seeking entity that have issued securities that are traded,listed or quoted on an exchange or an over the counter market.
  • An Employee benefit plan with the US securities and Exchange commission.

Related Solutions

Summarize the impact of ASU 2016-02, Leases on the recording of leases.
Summarize the impact of ASU 2016-02, Leases on the recording of leases.
"Capital Leases and Operating Leases" The new leasing standard accounting Standards Update (ASU) 842 will require...
"Capital Leases and Operating Leases" The new leasing standard accounting Standards Update (ASU) 842 will require lessees to recognize the assets and liabilities on the balance sheet created by the leases. This standard update will eliminate the primary form of off-balance sheet accounting and require additional disclosures on leasing transactions. Use the Internet or Strayer Library to research the provisions of (ASU) 842 applicable to the lessee. Identify two (2) material differences in lease reporting under the new standard and...
Explain the relationship of the SEC and the Financial Accounting Standards Board (FASB).
Explain the relationship of the SEC and the Financial Accounting Standards Board (FASB).
Income Measurement/Revenue Recognition A. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB)...
Income Measurement/Revenue Recognition A. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) came together on a unified project to outline the accounting principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. Research IAS-18, Revenue, and discuss how it would apply to AMAZON. B. Review AMAZON's revenue over the past two years. Analyze the change in revenue (increase/decrease) and give the reasons for this change. C. Reflecting upon AMAZON's balance...
USING THESE TWO Financial Accounting Standards Board (FASB 2008). Statement of Financial Accounting Standards No. 57...
USING THESE TWO Financial Accounting Standards Board (FASB 2008). Statement of Financial Accounting Standards No. 57 Related Party Disclosures. Financial Accounting Standards Board (FASB 2020). Accounting Standards Codification 850 Related-Party Transaction. ANSWER THE FOLLOWING QUESTION: The current FASB Accounting Standards Codification (ASC) system/format dates back to 2009. Before that FASB Accounting Standards consists of Statements of Financial Accounting Standards (SFAS). For the most part there have not been major changes in the substance of GAAP, but the two systems are...
Accounting standards update, ASU 2016-01, is effective for publicly traded companies with a fiscal year beginning...
Accounting standards update, ASU 2016-01, is effective for publicly traded companies with a fiscal year beginning after December 31, 2017. The accounting update now requires companies to classify its equity investments at fair value, except those accounted for using the Equity Method. In other words, equity investments are no longer classified as available-for-sale securities. Based on your knowledge of the accounting for equity investments, what is the financial reporting implications for a company that typically makes equity investments classified as...
Financial Accounting Standards Board (FASB 2008).  Statement of Financial Accounting Standards No. 57 Related Party Disclosures. Financial...
Financial Accounting Standards Board (FASB 2008).  Statement of Financial Accounting Standards No. 57 Related Party Disclosures. Financial Accounting Standards Board (FASB 2020).  Accounting Standards Codification 850 Related-Party Transaction. Nurnberg, Hugo and Thomas F. Schaefer (2010).  Integrative Case in Advanced Accounting. Issues in Accounting Education 25, No. 2, 323–329. How useful is Modern Cardiology’s income statement as presented in Exhibit 1 in resolving this income-sharing dispute? What are its limitations? Does it conform to U.S. generally accepted accounting principles (GAAP)?  Cite the standards including paragraph...
The Financial Accounting Standards Board (FASB) has been working on a conceptual framework for financial accounting...
The Financial Accounting Standards Board (FASB) has been working on a conceptual framework for financial accounting and reporting and has issued seven Statements of Financial Accounting Concepts (SFAC).These SFACs are intended to set forth objectives and fundamentals that will be the basis for developing financial accounting and reporting standards. The objectives identify the goals and purpose of financial reporting. The fundamentals are the underlying concepts of financial accounting-concepts that guide the selection of transactions, events and circumstances to be accounted...
FASB has develop new accounting standards for accounting for leases. These new standards are not covered...
FASB has develop new accounting standards for accounting for leases. These new standards are not covered in your text book. Research the new FASB Lease Accounting Standards and answer the following questions: 1. Why did FASB develop new lease accounting standards? 2. How will accounting for leases change under these new standards? 3. When will the new standards take effect? 4. How will the changes effect companies who lease assets/ 5. Based on your reading and research do you think...
The new revenue recognition standard issue by the Financial Accounting Standards Board (FASB) and International Accounting...
The new revenue recognition standard issue by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) will call for major changes in the way companies in the airline industry recognize revenue. Airlines may have to change how they account for loyalty status benefits, mileage credits, change fees, and breakage for tickets that expire unused. The American Institute of Certified Public Accountants (AICPA) has formed an airlines task force to address implementation issues of the new standard for...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT