ASC 842: Transitioning Leases and Why Equity Likely Isn’t Affected

March 26, 2019 at 10:17 AM / by LeaseCrunch® posted in Lease Components, New Lease Standard

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http://www.leasecrunch.com/the-new-lease-standard-everything-you-need-to-know


When the changes in an accounting standard impact assets or liabilities, we are accustomed to the difference flowing through equity. The new lease standard, ASC 842, is different because equity is not typically impacted in the initial journal entries. It might seem strange to not use your trusty “Cumulative Effect of a Change in Accounting Principle” account when implementing a new standard, yet it’s true - and important to know to ensure that your lease assets and liabilities are properly recorded. So how does it work? Read on to learn more.

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How the New Lease Standard Affects Accounting for Common Area Maintenance (CAM)

June 26, 2018 at 7:00 AM / by Ane Ohm posted in LeaseCrunch®, Lease Components, New Lease Standard, CPA Firms

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The new lease standard, ASC 842, changes the treatment of common area maintenance (CAM) within a real estate lease contract. Many real estate leases include some form of CAM, such as cleaning a building lobby, snow removal, landscaping, or janitorial services. Here are some things you need to know about CAM, including what is changing and a few practical examples.

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What Can CPA Firms Do Now To Help Clients With Policy Decisions in the New Lease Standard?

May 14, 2018 at 9:00 AM / by Ane Ohm posted in LeaseCrunch®, Lease Components, New Lease Standard, CPA Firms

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Policy elections that must be made under the new lease accounting standard are a critical part of implementation planning. They impact your clients’ future accounting and financial statement disclosures and your clients may not have even considered them yet. For example:

  • Do they understand the difference between lease and non-lease components?
  • Do they know that there is a short-term lease exception available?
  • Do they know how they want the presentation of lease assets and liabilities on their statement of financial position to appear?
  • Do they know that there are a number of practical expedients available that can save them time, but that they must elect them?
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How Do I Know If My Lease Has Multiple Lease Components?

June 1, 2017 at 7:26 AM / by Ane Ohm posted in Lease Components, New Lease Standard

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Lease accounting is applied at the lowest asset component. As a result, after you have identified the lease and nonlease components, you as the lessee should determine if the lease contains more than one lease component. You will do this by identifying the individual asset units and their relationships.

You determine if a lease has separate lease components by considering the interdependencies of individual assets covered in a contract. A key consideration is whether the supplier will use multiple assets, or a group of assets that work together, to fulfill the arrangement.

For example, if a customer leases 15 computers and monitors from a technology supplier, then there are clearly multiple assets involved in fulfilling this arrangement.

Is there one or many leases?

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Separating Lease and Nonlease Components

May 24, 2017 at 7:18 AM / by Ane Ohm posted in Lease Components, FASB, New Lease Standard, Lease Payments, IFRS

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Identifying lease and nonlease components

Not all costs related to a lease are included in the leased asset and liability. For example, a lessor may lease a truck and also include a provision to operate the truck on behalf of the lessee. Providing a driver, maintenance and gas are not related to securing the use of the truck and these costs would be considered nonlease components. Another example of a nonlease component is the fee for common area maintenance when renting office space.

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