Answers to Your Lease Accounting Questions
The new lease standard (Topic 842) is here and effective now. Manufacturing companies who lease assets will now record all (with minimal exceptions) leases as both an asset and a liability. Prior to Topic 842, entities were only required to recognize leases classified as capital leases on the balance sheet. For leases classified as operating leases, payments were reflected in the financial statements as rent expense on the income statement and the lease commitments were included in the disclosures of the financial statements. Under the new standard, a lessee should recognize a liability to make lease payments on the balance sheet and a right-of-use asset representing its right to use the underlying asset for the lease term.
Questions Answered!
Many manufacturers have questions regarding this change, such as:
- Do I have to apply this standard if I report my financial statements on a tax basis of accounting or any other special purpose framework?
- What type of arrangements are in scope and out of scope for this new standard?
- I only have a few “small” leases. Do I really have to apply this new standard if I believe the impact will not be significant to my organization?
- I have short-term leases; do I have to apply this new standard to them?
- I have related-party leases, what is the big deal about these?
Please read this article for the answers to these questions and more.
Thank you to Airam Valdez for providing the content for this post.
Please also tune in to our blog each week in the month of July for more facts and guidance around the new lease standard, Topic 842.
Allyson works for businesses of all sizes, maintaining a primary focus on business tax and consulting. She provides her clients with creative resolutions for technical tax issues and clearly interprets proposed and existing business tax law. Moreover, her thorough experience with trusts and estates allows her to deftly guide clients through the complicated legislation and the intricate processes involved in compliance, maximization of returns, and sustaining business and family wealth. She first gained knowledge and experience working for several years in a national firm, in a small firm environment, and in solo practice. She was also a partner in a regional legacy firm for 15 years prior to joining CLA. Her extensive tax experience bolsters CLA's talented staff and cultivates client relationships and makes her an invaluable member of the professional and civic communities.
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