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.