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What are the key advantages and disadvantages of leasing
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Companies use leases in order to obtain assets that would potentially cost them more to own or negative to use credit to obtain. Leasing has a reputation amongst individuals who cannot obtain the entire information of the companies use of the lease due to the accounting treatment it has. This can lead to false representations in the financial statements. With the International Accounting Board (IASB) that creates and approves financial reporting standards proposed change to the accounting methods for lease purposes, this can provide a curve to how companies record the transaction. Leasing is a form of contract that sets an agreement for borrowing/utilizing an item or land for a specific amount of time along with payments over the duration …show more content…
According to Staff (2015), “The new standard retains the straight-line expense recognition for operating leases on the income statement” (p. 1). This method is used as the expected pay periods are the same with the same rate throughout the life of the lease. For a leased office space this would be the (Total rent payment of the contracted lease term/ the number of months). Cash flow should still be predictable under the new accounting rules for leases and companies that lease still see the benefits. Rather than buying the equipment that would cost more upfront, leasing allows to pay less for the same equipment and use the saved cash on other investments that will increase the value of …show more content…
The presentation on the financial statements will still depend on whether the lease is classified as a Type A or Type B lease and recorded to match the data. Asset and liabilities will be computed on the balance sheet of a lease obligation more than 12 months with a right-to-use asset report and liability to match. Due to front loading, the lease expense will match and adjust accordingly due to the periods in which the expense is higher and lower towards the ending of the lease obligation. Interest charged will be recognized separately from the liability of the lease. Year-end reporting will also have the information of the leases on the annual report that meet the Type A or Type B requirements along with the 12-month requirement. Financial disclosure notes will still be the same as itemizing smaller lease payments for the future will still exist. The new accounting rules will have an impact on income tax recorded as far as deferred
This case study examines various real estate contracts – the Real Estate Purchase Contract (REPC) and two addendums labeled Addendum No. 1 and Addendum No. 2 – pertaining to the sale of 1234 Cul-de-sac Lane in Orem, Utah. The buyers in this contract are 17 year old Jon D’Man and 21 year old Marsha Mello; the seller is Boren T. Deal. The first contract created was Jon and Marsha’s offer to purchase Boren’s house. This contract was created using the RESC form, which was likely provided by their real estate agent as it is the required form for real estate transactions according to Utah state law. The seller originally listed the house on a Multiple Listing Service (MLS); Jon and Marsha agreed that the asking price was too high for the neighborhood (although we are not given the actual listing price), and agreed to offer two-hundred and seven-thousand dollars ($207,000) and an Earnest Money Deposit of five-thousand dollars ($5,000). Additionally, the buyers requested that the seller pay 3% which includes the title insurance and property taxes. After the REPC form was drafted, the two addendums were created. Addendum No. 1 is from the seller back to the buyer, and Addendum No. 2 is the buyer’s counteroffer to the seller.
Financial Accounting Standards Board. (1985). Statement of Financial Accounting Standards No. 86. Norwalk. Retrieved April 7, 2014, from http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175820922177&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=189998&blobheadervalue1=filename%3Dfas86.pdf&blobcol=url
Monthly payments and the money put down play a big roll in obtaining a vehicle. Buying requires a down payment in the form of trade or cash whereas leasing requires little or no down payment. Monthly payments are based on the purchase price of the vehicle if bought, but if leased payments are based on the use of the vehicle. Although if leasing, the payment terms are incredibly shorter.
Leased land: CLTs provide for the exclusive use of their land by the owners of any buildings on the land. Parcels of land are conveyed to individual homeowners (or the owners of othe...
In further understanding the differences between the trends in rental v. owner-occupied housing, we can apply economic theory. First and foremost, is supply and demand theory. This is the most basic of economic principles. It explains how prices are set, how and when the market is at equilibrium, and human behavior in the context of a free market economy. (The Law of Supply and Demand, n.d.) The greater the demand for a good, the higher its price. This is what we saw with the build-up of the housing bubble.
The biggest bonus to leasing is that usually, you do not have to pay for maintaining it. The dealer may provide servicing at a discounted price. You will have to find out what all is included in the lease agreement before you
The NAL still favors buying over leasing by $1216. The only other consideration would be that lease may raise the earnings on asset ratio above 12%. But since the PV of the lease payments is greater than 90% of the FMV (assuming the purchase prices is FMV), then it would be considered a capital lease and the asset would go on the Balance Sheet. Therefore there are no earning over asset ratio advantages to leasing.
There are two major types of leases: operating and capital. An operating lease involves leasing service equipment for shorter periods than the fiscal life of the equipment. Operating leases are used for short-term leasing and for technological assets. Capital assets involve leasing an asset or equipment for all of its economic life. Capital lease are used for long-term leasing and for equipment that cannot become technologically obsolete (Zelman, 2003).
Under the accrual basis of accounting, expenses are matched with revenues on the income statement when the expenses expire or title has transferred to the buyer, rather than at the time when expenses are paid. The balance sheet is also affected at the time of the expense by a decrease in Cash (if the expense was paid at the time the expense was incurred), an increase in Accounts Payable (if the expense will be paid in the future), or a decrease in Prepaid Expenses (if the expense was paid in
Students will fall between the two different options based on how they weighed the information. Every answer should take into consideration paying the loan and or monthly bills as well as turning a profit.
From 1967 thru 1980, firms followed the comprehensive tax allocation procedures under APB Opinion #11 and reported deferred charges and credits. However, some problems arose from doing so. Because of the changes in tax rates and the nature of firm's investment, the balance of deferred tax credits on a firm's balance sheet began to grow in size instead of reversing and canceling out.
In reviewing the company’s balance sheet, the current assets and liabilities were reviewed and liquidity ratios were calculated. The capital structure and the fixed and intangible asset accounting of the company were also reviewed. Off-balance sheet items such as leases and contingent liabilities were reported and noted. All of these aspects of the balance sheet were reviewed in order to do a proper analysis of the company’s balance sheet.
In a significant step towards convergence, the FASB and IASB (“the Boards”) issued the Exposure Draft, Revenue from Contracts with Customers in 2010. The goal was to create a single joint revenue recognition standard that companies could apply consistently across industries and capital markets thereby improve financial reporting. The Boards highlighted a number of improvements in the proposed standard - removing inconsistencies, improving comparability, requiring enhanced disclosures and clarifying the accounting for contract costs. Instead of focusing on “realized/realizable” and “earned” the Exposure D...
...n. Based on the definition of asset/liability, the operating leases items meet it. Therefore the amount should show as asset/liability off balance sheet as well.
The success of a company is very dependent upon its financial accounting. In accounting there are numerous Regulatory bodies that govern the accounting world. These companies are extremely important to a company because they set the standards when it comes to the language and decision making of a company. These regulatory bodies can be structured as agencies, associations, commissions, and boards. Without companies like the Security and Exchange Commission (SEC), The Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB), Internal Accounting Standards Board (IASB), Internal Revenue Service (IRS), and other regulatory bodies a company could not make well informed decisions. In this paper the author will look at only four of them.