Question

can you summarize 'FASB ASC Topic 840, Topic 842'?

Answer 1

FASB (Financial Accounting Standard Board) ASC (Accounting Standard Committee) topic 842 instead of 840. These are commonly based on lease accounting. There are two types of leases, financial lease and operating lease.Under 840 operating leases are only permitted to shown only in the footnotes of financial statements.But under the leases that can be exempted from capitalisation is those lease which have maturity less then  12 months. ASC 840 is an old concept of lease, it was introduced almost 40 years back. Now it has replaced by 842.

Leasing is a method of acquiring the right of a property to use for a particular period of time for a consideration. There are mainly 2 parties in a lease contract. Lessor and Lessee. Lessor is the owner of the property and lessee is a person who acquire the right to use that property. The consideration given by the lessee to the lessor is called Lease rental.

There is a famous quotation of lease suggested by Donald B Grant."Why own a cow when the milk is so cheap?All you really need is milk,and not the cow". Here we can understand what actually lease refers.

There are two types of lease

1-operating lease- which means the property is hired only for a period of 3-5 years. which has short life span. It includes lease of vehicle, equipment etc. The lessor has high risk in case of operating lease.

2-financial lease- which means hiring a property for the specific use of lessee. it is for a long period.All maintenance expenses are met by the lessee itself.