Research Paper On Accounting For Leases

Today, corporations struggle with economic uncertainty. Maintaining profitability, cash flow and a company's vitality challenges financial managers continuously. This essay portends substantial change on the horizon, specifically surrounding lease arrangements and the dramatic impact of associated financial reporting changes. Once mandated, these modifications have the potential to negatively impact companies' long-term corporate health. Because creditors and lenders rely heavily on a company's financial reports to evaluate the corporation's financial health and borrowing capacity, business managers and accountants should prepare for potential changes impacting them. This essay will give a high level overview of the economy; then, the history and definition of corporate leasing will guide the reader to a focused discussion on lease accounting.

A Word on the Global Economy

The United States' and the global economies are powered by the growth in goods and services produced. Business investments, growth in stocks and values, investments, and trade are but a few of the factors influencing economic trends. The underpinning of economic growth is cash and investments. In the usual course of business, companies often lack readily available cash. Some will borrow funds or sell stocks; while for others, leasing provides a viable option to borrowing when growth is required. No matter the mechanism, to support their growth trajectory, corporations must add resources to meet or create supply. Growth companies, in particular, tend to be prone to poor operating performance (profitability), and are commonly limited in terms of available investment dollars. Leasing provides the opportunity for these companies to appreciate their business without impacting their balance sheet… at least for today.


Customarily, leasing allows companies the option of not having to make a hard investment. As evidence of its utility, leasing is now estimated to finance some $200 billion of equipment per year in the US. What are companies leasing? The following is a short list of examples:

  • Aircraft
  • Computer systems and software
  • Trucks and construction equipment
  • Office, medical equipment, and furniture
  • Large manufacturing equipment and tools

Leasing offers financial benefits over purchasing, some of these include:

  • Lower up-front cash requirements; a leased item can be acquired and used quickly.
  • Limits the need for borrowed money; borrowed money limits available credit and ties up money which would produce a greater return if used in other ways.
  • Provides the company to ability to maintain greater cash liquidity.
  • Avoidance of owning equipment that becomes obsolete -- the lessor has the obligation to deal with getting rid of old technology.
  • Known payment for which to budget; no depreciation to report.
  • Leasing technology assets (depreciable) provides another source of credit.
  • Advance lease payments, sometimes required, reduce future payments.

Types of Leasing

There are two main types of leases: Finance Leases and Operating Leases. The finance lease allows a company to finance the purchase of an asset, without ever acquiring the asset. The finance lease will give the lessee control over an asset for the majority of its useful life, imparting to the lessee the advantages and risks (maintenance, insurance, taxes) of ownership. The Operating Lease, which does not appear on the balance sheet, holds the owner / lessor responsible for the maintenance and upkeep. Some lease models are detailed below:

  • A Lease Purchase provides the lessee an opportunity to buy the equipment at the end of the lease for a nominal fee, and become the owner who can then trade in or up. There is a fixed monthly payment, and because buyout terms are included in the original agreement, the value of the equipment is known at the end of the lease. The lease purchase allows the lessee, considered owner of the equipment, to depreciate the item. The leaseholder will record the equipment as an asset on the balance sheet and the monthly payments as liabilities.
  • The Operating Lease, also known as the Fair Market Value (FMV) Lease is similar to Lease Purchase, but typically offers a buy-out at the end of lease, at a price that represents fair trade value of the equipment. The leaseholder also has the option of re-leasing or renting the equipment. The terms of this lease are usually 75% or less of the item's useful life, and the current value of the lease payments should not be greater than 90% of the FMV of the equipment -- using the lessee's established incremental borrowing costs. In contrast to the Lease Purchase, the payments on an operating lease are claimed as tax deductible operating expenses. In this case the lessor depreciates the value of the equipment, as the owner.
  • Purchase upon Termination Leases (PUT), set an obligatory purchase price. A lease of this design offers a lower fixed lease payment during the term of the lease, and avoids an unknown lease-end risk for either party.
  • A TRAC lease is used for "over the road" vehicles. A TRAC lease is a specific type of lease often used for costly vehicles like trucks, tractors and trailers. Residual values are predetermined but the payment deductibility benefit of a standard lease is maintained. Depreciation expense for the vehicle is recorded by the lessor (owner).


Financial professionals have available to them a framework to make prudent decisions about the use and the determination of what terms create a capital or an operating lease. The Financial Accounting Standards Board (FASB) sets reporting standards and attempts to minimize misinterpretation of the regulations. Yet, some companies continue to practice financial engineering (modified interpretation), by which they take the liberty of recording a capital lease as an operating lease. Such practices carry markedly more risk to companies today than in years past, primarily as a result of 2002 legislation driven by the Securities and Exchange Commission (SEC) . Companies must use caution in interpreting the provisions defining qualifications for capital leases, as follows.

In 2002, the Sarbanes-Oxley Act, know as SOX or SARBOX for short, was the reaction by the legislature, to numerous corporate accounting scandals involving Enron, Tyco International, and other public corporations. The legislation established new or enhanced standards for U.S. publicly-owned companies as well as for public accounting firms. As relates to leasing of equipment and capital, Title IV of the SARBOX legislation applies. The nine sections of Title IV describe the formal reports mandatory for financial transactions which include off-balance sheet transactions, pro-forma figures and stock transactions of corporate officers. Because an operating lease obligation does not appear on the balance sheet, the company with such an arrangement will appear less leveraged upon analysis. For obvious reasons, this is a favorable arrangement for the reporting company. Stringent oversight of companies' accounting practices and punitive actions for blatant or even unintentional infractions should be forefront on the minds of companies and their management teams. For further clarification, see the following from the National Real Estate Investor.

"The operating lease structure is a form of off balance sheet accounting, which means the lease obligation is not reported as a liability...

Research paper on accounting for leases

Rated 5/5 based on 16 review

Research paper on accounting for leases

Ahh jpense envoie la police que tu veux jcopie et jessaye dissertation la philosophie est elle essentiellement speculative neurons and neuroglia compare contrast. Leases: off-balance sheet financing and the led to the committee on accounting procedure establishing accounting research accounting for leases was one of. Gaap vs ifrs treatment of leases and the impact on financial ratios research paper series no 2013–2 papers gaap vs ifrs treatment of leases. Financial reporting developments - lease accounting - accounting standards codification 842, leases we have updated our frd publication on accounting for leases under.

Return to leases project update main page accounting for leases —how to proceed with a joint leases discussion paper january 2009. Accounting and valuation advisory services leasing 1999/2000 discussion paper entitled ‘g4+1 special report: lease accounting. Leases, debt and value in this paper, we will begin by examining the accounting and tax treatment of accounting for leases. A discussion paper, leases: new accounting rules will force us companies to years after a new lease accounting standard until a company’s.

New fasb rules on accounting for leases: on accounting for leases: a sarbanes-oxley promise delivered of law, public law research paper no. Global lease capitalisation research) how will the proposed new accounting standard for leases affect retailers the new accounting standard for leases.

Free essays on research leases and lease structure issues on the financial accounting standards board fasb website for students 1 - 30. Leases (ifrs 16) this joint iasb-fasb project seeks to improve the accounting for leases by the boards held a joint session to discuss agenda papers 3a. Read this essay on lease accounting come browse our large digital warehouse of free sample essays get the knowledge you need in order to pass your classes and more. Download enterprise lease accounting white papers, ebooks, handbooks and research guides featuring best practices from the experts at leaseaccelerator.

Though most of the issues with lease accounting involve the lessee side of the association for investment management and research (aimr 1993) issued a position paper. The impact of lease capitalisation on financial statements and key ed 2013 on lease accounting research in two ways first, this paper contributes to an. Accounting for leases the accounting topic of leases is a popular paper f7 exam area that could feature to varying degrees in questions 2, 3.

Operating lease finance in the of stirling faculty of management research fund is impact of the new accounting proposals the paper.

  • From this page you can access research papers dealing with accounting issues.
  • How to write a very nice essay how to write an essay in uk research paper for technology a level religious experience essay words to use in discursive essay la chase.
  • Research paper accounting for leasenairobi school of business master of business administration advanced financial.
  • Lease accounting new standard (asc 842): an expert’s guide to implementation that the new pronouncement will make to the current accounting rules for leases.

New leases standard requires virtually all leases to be with a discussion paper issued in ifrs 16 includes a single accounting model for all leases by. Read accounting for leases - ias 17 leases free essay and over 88,000 other research documents accounting for leases - ias 17 leases introduction ias 17 leases sets. Site reúne todos os serviços de streaming de música em um só 28 de janeiro são 8 aplicativos variados, confira. Junie b jones author biography essay fortunato cask of amontillado characterization essay mason lsz synthesis essay carter journey to the center of the earth essay.

0 Replies to “Research Paper On Accounting For Leases”

Lascia un Commento

L'indirizzo email non verrà pubblicato. I campi obbligatori sono contrassegnati *