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Lease Accounting - Help!!
Main Post:
Despite having nearly 3 years for this pronouncement, the assistant controller at my company left and I was dumped with all of the lease accounting work in early February 2019... She literally started nothing. I've read up and got to a good place before I realized that although the application date is 1/1/19, I need to do the cumulative effect going back (thanks to ASU 2018-11, I don't have to recast the prior comparative periods).
Do I start each of my tables with the lease inception date? Going back to the original inception date or the most recent renewal date? Or just the date of the earliest comparative period (e.g.1/1/17)?
Also, I thought I would be doing the present value of the future payments and bringing it back to 1/1/19; but I now think I would have to bring it back to either the inception date or at least 1/1/17.
Top Comment:
https://costarmanager.com/not-ready-for-the-new-lease-accounting-standards-heres-what-to-do/
Adjusted 2: Go Live after Q1 close, before disclosure.
This process is for businesses that plan a Go Live after Q1 2019 close but before the deadline for the quarterly disclosure (between 4/1/2019 – 10Q deadline). Compliance can be achieved by following this process:
- 842 Amortization Schedules: Create and approve after Q1 close
- 840 Journal Entries (month end close): Book for entire Q1. Zero out deferred rent by manually booking adjusting entry to opening ROU asset
- 842 Journal Entries (month end close): Post for ROU Asset and Lease Liability at the end of P3 with offsets to deferred/prepaid rent (display approach). Entries can be top-level summary entries and will probably need to be auto reversing
- Balance Sheet Reconciliation (month end close): Finalize reconciliations under 840, then use to support entries for display approach and then perform recs under 842 using the Accounting Summary report from CoStar
- Disclosure Report: Available when 842 schedules are final and may be used to support the entries and balances associated with ASC 842
- Internal Controls: Documented for 842 project, temporary display approach method, cutover and go forward process
- 2018 10K (SAB 74): Quantitative disclosures probably not complete prior to 10K filing. Recommend accelerating Go Live for the most material portion of the lease portfolio to validate any statements regarding ASC 842 impact
- Re-work Required: All of Q1 would be re-worked at the detailed lease level ASAP in Q2, and “Adjusted 1” method would then be used in Q2
Why is lease accounting ridiculous?
Main Post:
I’m learning about lease accounting now in my classes and I just find it to be the most absurd subject thus far. It is as if the standard setters made it intentionally esoteric for no reason other than to prove they’re a smarty pants. Like, why do we have all this Right of use asset and interest expense stuff for something that’s in essence a rental? I get how to do amortization tables, but it seems like a pointless step for leasing. Am I the only one who thinks this?
Top Comment: It’s because companies were structuring debt to look like leases and barely pass the capital lease tests to keep them off the balance sheet, thus understating liabilities.
What happened to my simple lease shit
Main Post:
I’m coming back to FAR after having passed a couple of years ago but taking my sweet ass time to pass the other 3 and losing my FAR score. Cruising through everything when I come across ASC 842 and I’m officially fucked. Taking the exam in less than a week and these goobers have completely changed everything about what used to be a very simple topic. Operating leases aren’t even easy anymore. Hopefully I’ll pass, but seeing all this needless garbage only adds to the thought that FASB, GASB, AICPA, NASBA, State fucking board, FAF, and every other stupid fucking set of letters is completely devoid of value. I hope the stupid fucks that came up with this pile are happy back at their university as the endowed chairs of accounting.
Top Comment:
😆
FAR: Lease Accounting (Becker)
Main Post:
Taking my exam tomorrow and am stressed to death over the new leasing standards. Doesn't feel like Becker really goes over the leases themselves that much.
Can anyone speak to what the exam was asking for in terms of lease accounting?
Top Comment:
If you understand the old lease rules, really the only thing that changed was lessee accounting for operating leases. Now, you have to capitalize and amortize the asset for lessees under operating leases along with recording straight line lease expense. Lessor for capital and operating and lessee for capital is still the same.
Also, I don't think I had any lease questions on my test.
Cars: Financing w/ large down payment vs. Lease-to-own
Main Post:
I've always financed my cars, but I have a friend who swears by leasing-to-own. She described her reasoning yesterday and made it sound great, but I was left thinking, what's the catch?
Her reasoning: When leasing, your monthly payments are comparably lower for the duration of your lease than financing the same car would be. Then, once that's up, to own it, you can finance the remaining value of the car, which is less than the amount you would've been financing had you financed from the get-go. So in the end, the leasing-to-own route keeps monthly payments always lower than financing outright would be, both during and after the lease period. Beyond that, all maintenance is paid for during the lease (as opposed to financing where it's on the owner), so you save money there too.
Sounds pretty good, but if this were correct, everybody would lease and no one would finance. So surely there are some drawbacks/trade-offs to leasing-to-own. What are they? Is it b/c you end up having payments for longer? Or do you end up paying more in interest?
I'm new to leasing, so can someone with experience weigh in? Thanks!
Edit: The above example assumes the same car, to keep things constant. I know some leasers tend to go with fancier cars b/c payments are lower during the lease.
Edit 2: "w/ large downpayment" is in the title b/c when I finance, I always make a large down payment to keep monthly payments low. So I had this in mind when comparing the two options. Didn't really explain that in the post, my bad.
Top Comment: Never ever just look at the monthly payment to understand if one option is a better "value" than the other. Look at the total amount spent through the life of your payments. $200 a month for 8 years is more costly than $300 for 5 years. In fact lowering your monthly payments and focusing on monthly costs is literally exactly how car sales folks will talk you into more car than you can afford etc. It's easier to convince yourself that saving $50 a month if you extend your term is a good decision until you look at the full term total
Leasing a truck then buying out at the end of lease?
Main Post:
Do you think there is a benefit to leasing a new truck for a cheaper monthly payment during the period it would typically depreciate (24-36 months), then buying it out at the end of the lease? Assuming you could buy it at market value or negotiate at the beginning of the lease what it would the buyout cost would look like at the end of the lease period.
Google did not provide any answers, and I couldn't find any threads related to this question.
Top Comment:
Why not just buy a 2-3 year old truck?
Leasing a car
Main Post:
Is leasing a car a dumb financial decision? Seems like a decent way to avoid maintenance nightmares and not buy a quickly depreciating investment.
Top Comment:
Maintenance is not really that expensive compared to the cost of depreciation on a new car - and in leasing that is exactly what you are paying for - by definition! You pay for the amount of depreciation that occurs during your period of use. That's the primary determinant of your lease payment.