Question

"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 assess the impact on financial reporting. Speculate on the future impact the implementation of the new standard will have on investors.

Answer 1

ACCOUNTING STANDERDS CODIFICATION - 842

ASU 842 OR ASC 842 IS THE NEW LEASE ACCOUNTING STANDERD WHICH RECENTLY RELEASED BY FINANCIAL ACCOUNTING STANDERD BOARD.ASU 842 IS THE REPLACEMENT OF PREVIOUS US GAAP LEASING STANDERD 840.THE OLD ONE WAS 40 YEARS BEFORE.NEW STANDERD AIM TO ELIMINATE THE LOOPHOLE ON OFF-BALANCE SHEET OPERATING LEASES.ASU 842 BEGIN TO IMPLIMENT ON DECEMBER 2018 FOR PUBLIC COMPANIES AND DECEMBER 2020 FOR PRIVATE  COMPANIES

MATERIAL DEFFERENCES BETWEEN ASU 842 AND OFF-BALANCESHEET OPERATING LEASES

1. ACCOUNTING TREATMENT FOR LEASES

ASC 842 MAKE A SIGNIFICANT CHANGE REPORTING OF ACCOUNTING TRAETMENT FOR LEASES.MOST OPERATIONAL LEASES ARE NOW CAPITALIZED ON THE BALANCESHEET.UDER OLD STANDERD ASC 840 (FASB) PERMITED OPERATING LEASES TO BE REPORTED ONLY IN THE FOOTNOTES OF CORPORATE FINANCIAL STATEMENT. UNDER 842 THE ONLY LEASES THAT ARE EXEMPTED FROM CAPITALIZATION REQUIREMENT ARE SHORT-TERM LEASES. LESSTHAN OR EQUAL TO 12 MONTHS IN LENGTH.

2.LEASE PAYMENT

LEASE ORIENTATION COSTS CAPITALIZED UNDER ASC 842 DEFFER FROM CURRENT U.S GAAP IS THERE IS A NEW DEFINITION OF INDIRECT COSTS.WHICH WILL MOST LIKELY RESULT RESULT IN FEWER INDIRECT COSTS THAT ARE CAPITALIZED UNDER THE ASU 842ADDITIONALLY, UNDER CURRENT U.S GAAP ALL EXCECUTORY COSTS,LIKE PROPERTY TAX OR INSURENCE ARE EXCLUDED FROM MINIMUM LEASE PAYMENT.BASICALLY UNDER ASU 842 THESE TYPE OF COSTS ARE PART OF LEASE PAYMENT USED TO CALICULATE THE LEASE LIABILITY AND ROU ASSET

FUTURE IMPACT ON INVESTORS TO HAVE A GREATER TRANSPARENCY IN COMPANIES FINACIALS REPORTS.IT ENABLE A CLEAR CUT ABOUT LEASES AND MORE DETAILS ABOUT STAMENTS