GAAP for Leases
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The Financial Accounting Standards Board revolutionized accounting for leases with the issuance of Accounting Standards Update 2016-02. The new lease accounting rules will have a major impact on the financial statements of any organization that leases any type of property or equipment, and may have a detrimental impact on contractual obligations, such as loan covenants. The new rules are already in effect for public companies and will go into effect for private companies and nonprofits in 2021. This course will familiarize you with the new rules and will help you navigate their complexity.
•What is a Right of Use Asset?
•Types of Arrangements that are Subject to the New Accounting Rules for Leases
•The Four Steps necessary to Calculate the Right of Use Asset
•Determining the Lease Term
•Identifying the Various Types of Lease Payments
•Choosing a Suitable Discount Rate
•Additional Elements Incorporated into the ROU Asset
•The 12-Month Policy Election
•Accounting for Operating Leases Under the New Standard
•Accounting for Finance Leases Under the New Standard
- Nature of Property 00:06:41
- Lease Defined 00:10:21
- Right to Control 00:10:59
- Embedded Leases 00:13:15
- Calculating ROU Asset 00:15:33
- Determining Lease Term 00:17:34
- Renewal Options 00:26:23
- Identifying Lease Payments 00:29:34
- Lease Payment Issues 00:32:28
- Segregating Lease Components 00:35:22
- Example: Contract Components 00:35:50
- Solution 00:36:59
- Determining Discount Rate 00:37:29
- Example 00:39:54
- Solution: Step 1 Determine the Lease Term 00:41:13
- Solution: Step 2 Identify Lease Payments 00:42:42
- Solution: Step 3 Determine the Discount Rate 00:43:27
- Solution: Step 4 Identify ROU Asset Elements 00:44:28
- Calculation of Lease Liability 00:47:26
- Calculation of ROU Asset 00:48:19
- 12- Month Policy 00:50:30
- Finance vs. Operating Leases 00:54:37
- Financing Lease Criteria 00:57:01
- General Considerations 00:57:26
- Lessee Accounting: Operating Leases 01:05:03
- Operating Lease Example 01:06:05
- Operating Lease Example: Year 1 01:07:30
- Operating Lease Example: Year 2 01:16:04
- Operating Lease Example: Year 3 01:17:56
- Lessee Accounting: Finance Leases 01:20:49
- Lessee Accounting: Finance Leases (cont’d) 01:29:25
- Finance Lease Example 01:31:29
- Finance Lease Example: Year 1 01:33:04
- Finance Lease Example: Year 2 01:35:48
- Lessor Accounting: Minimal Changes 01:37:56
- Thank you/Presentation Closing 01:40:19
- Accreted Interest 01:09:32
- Amortization 00:56:01, 01:09:28
- Asset 00:11:35, 00:57:08
- Finance Lease 00:54:52, 01:20:51
- Lease Liability 00:02:42, 00:48:47
- Lessee 00:11:31, 00:26:28, 01:05:03, 01:05:13
- Lessor 00:37:37
- Operating Lease 00:54:53, 01:05:13
- Personal Property 00:07:22, 00:59:56, 01:21:08
- Real Property 00:07:21, 00:57:37
- Right-of-Use asset (ROU asset) 00:01:54, 00:15:33, 00:36:57, 00:48:14, 01:08:12
- Tangible Personal Property 00:09:53
Accreted Interest : Accreted Interest means interest accrued on a Loan Asset that is added to the principal amount of such Loan Asset instead of being paid as interest as it accrues.
Amortization: An accounting term that refers to the process of allocating the cost of an intangible asset over a period of time. It also refers to the repayment of loan principal over time. (investinganswers.com)
Asset: Property owned by a person or company, regarded as having value and available to meet debts, commitments or legacies.
Finance Lease: A financial lease is generally treated like loan. Here, asset ownership is considered by the lessee, so the asset appears on the balance sheet.
Lease Liability: In accounting, a lease liability is a financial obligation to make the payments arising from a lease, measured on a discounted basis. Lease liability is calculated using the present value of the lease payments over the lease term discounted, typically, using the lessee's incremental borrowing rate.
Lessee: In a lease agreement, the lessee is defined as the party that pays for the use of the asset or property.
Lessor: One that transfers property (such as a house or a car) by a contract. The lessor is the party that receives payments from the lessee in exchange for the usage of its asset or property.
Operating Lease: An operating lease is generally treated like renting. That means the lease payments are treated as operating expenses and the asset does not show on the balance sheet.
Personal Property: Personal property is something that you could pick up or move around. This includes such things as automobiles, trucks, money, stocks, bonds, furniture, clothing, bank accounts, money market funds, certificates of deposit, jewels, art, antiques, pensions, insurance, books, etc.
Real Property: Real property is land and any property attached directly to it, including any subset of land that has been improved through legal human actions. Examples of real properties can include buildings, ponds, canals, roads, and machinery, among other things
Right-of-Use asset (ROU asset): In accounting, the right-of-use asset (ROU asset) arises from a lease agreement and represents the lessee's license to hold, operate, or occupy the leased property or item over the lease term. The asset is calculated as the initial amount of the lease liability, plus any lease payments made to the lessor before the lease commencement date, plus any initial direct costs incurred, minus any lease incentives received.
Tangible Property: Tangible property in law is, literally, anything which can be touched, and includes both real property and personal property (or moveable property), and stands in distinction to intangible property.
Chuck Borek is a practicing attorney and founder of the Borek Group, LLC. Chuck is also a CPA, and his background includes five years as a partner in a public accounting firm. He received his law degree and MBA summa cum laude from the University of Baltimore in 1993, where he was editor-in-chief of the Law Review. He has been teaching professionally since 1989, including four years as an Associate Professor of Accounting and two years as a Visiting Assistant Professor of Law. He ha... View Full Profile
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