Mazuma Capital Partners: Lease Accounting Standards Talks Still Underway

Mazuma Capital Partners: Lease Accounting Standards Talks Still Underway:

Hitting an impasse over how to account for short-term, rental-like leases, the Financial Accounting Standards Board and the International Accounting Standards Board will regroup next week to discuss their findings after additional research on an eleventh-hour proposal.


FASB and IASB are in the home stretch of redeliberating a new accounting standard for how to account for all leases to bring them on the balance sheet and banish the bright-line distinction between operating leases and capital leases. The boards have long wrestled, however, with how to develop a straightforward method to account for leases like today's operating leases, which tend to represent short-term arrangements for limited access to a given asset bearing little resemblance to the purchase of the asset. They are trying to put the finishing touches on a revised proposal so that it can be issued for a fresh round of comments and wrapped up by 2013.

FASB, IASB Revert to One Model for Lease Accounting

Never mind, the Financial Accounting Standards Board has decided on its plan to allow two different accounting methods for leases. They like their original, single-model idea best after all.
In deciding how companies should account for leases, the FASB and the International Accounting Standards Board initially proposed all leases would be treated like financing transactions, with companies recognizing a liability to make lease payments and putting an asset on the balance sheet reflecting the right to use the asset for the term of the lease. Both would be measured at the present value of the lease payments. The liability would be measured in subsequent periods using the effective interest method while the asset would be amortized or written down based on the pattern of consumption and the expected future economic benefit it would produce.
Companies swallowed the treatment for long-term lease agreements that look and feel a lot like the financed purchase of an asset, but they cried foul for short-term leases that look and feel more like simple rental agreements. FASB and IASB acquiesced and agreed they would work on a two-model approach.
The boards determined “finance leases” would be treated like installment purchases, much the way today's capital leases are booked in the financial statements. “Other than finance” leases would be treated like today's operating leases, with an even amount recognized as expense each period over the life of the lease. Such a recognition pattern would more closely match the actual cash flows as companies pay down their lease obligations, companies argued and the boards conceded. FASB and IASB instructed their staff to define the criteria that would be needed to distinguish between the two types of leases.
Now, however, the boards have reversed course and decided they won't establish a two-model approach. In a joint meeting last week, FASB and IASB said they're going to stick with their original idea as described in the exposure draft for a single model for all leases. They promised to give some further thought to how to address concerns about the presentation and disclosure of information related to amortization, interest expense on the liability to make lease payments, total lease expense, and lease payment cash flows.
The lease project is one of four key accounting standards FASB and IASB are developing jointly to try to bridge major differences between U.S. and international accounting rules. The board continue to mull over how they want map out the accounting requirements for lessors as well.

See entire article:  http://www.complianceweek.com/fasb-iasb-revert-to-one-model-for-lease-accounting/article/203665/

Accounting update from ELFA

May 23, 2011: At a joint meeting on May 19, the FASB and IASB reversed recent tentative decisions in the lease accounting project as follows:

• Lessee P&L - No leases will be allowed straight line rent expense treatment but rather all leases will have be front ended lease costs equal to interest expense and depreciation of the right of use lease asset
• Lease Term - Will not be current GAAP but rather will be a lower threshold including consideration of strategic importance of asset, lessee intent and behavior in renewing in the past and will be adjusted when there are changes in judgment or circumstances
• Incremental Borrowing Rate - Lessee will use its new incremental borrowing rate to calculate adjustments when lease payment assumptions change
• Short-Term Leases - Will not be exempt from capitalization
• Lessor Accounting - Still undecided between only using a derecognition method or having both an operating lease method and a derecognition method. They are considering accreting residuals in the derecognition method.

Leasing- A Smart Option for New and Used Equipment

In need of new equipment, but not ready to use all your capital to purchase it? 
Leasing is a GREAT solution.  Why you ask?

Not only does leasing help you conserve your cash, it also ensures that you don't wind up paying for equipment that becomes obsolete or unsuited for your needs. And think about this: if you need the equipment only for a short time or special project, leasing saves you the hassle of having to be both a buyer and, then later, a seller. 
Mazuma Capital will work on crafting a lease to help minimize your federal income tax liability, maximize your accounting objectives and customize cash-flow solutions to your budget.  Our Associate Structuring Group has expertise in all these areas and will help guide you to the best structure for your situation.

• Tax oriented leases “true or guideline” leases
• Non-tax oriented leases
• Loan, conditional sales contracts, balloon, and other purchase option structures
• Operating leases
• Lease facilities
• Sale & lease back options
• Step up/step down leases
• Seasonal leases
• Differed payment options
• Bundled lease products
• Non-tax operating leases, and other tax/GAAP products

From technology and medical equipment to renewable energies, leasing is a great option. There's no limit to the type of equipment available for leasing. Even a one-person operation can lease equipment. Unlike loans, leases do not require a down payment. You're required to pay for the use of the equipment during the lease term. You may also be responsible for routine maintenance and other costs as well. When the lease expires, the equipment goes back to the leasing company, you can opt to purchase however you choose to complete your obligation.
Lease payments are considered an expense that you deduct from your business income, just like any other expense.

Flexibility is another leasing feature. If customers or the competition demand that you always have the latest technology, a short-term lease can help you get what you need and keep your cash in other uses. Another plus is that most leasing companies offer lease-to-own plans if you determine that purchasing the equipment is in the best interests of your business.
The Equipment Leasing and Financing Association, a trade group of leasing companies and financial services companies, has a special section that explains the basics of leasing at its website, elfaonline.org. You'll also find guidance on leasing options and benefits, loan/lease differences, leasing terminology.

Mazuma Capital is a national direct lender, financing $100K-$10MM transactions. 
Mazuma Capital offers amazing vendor services and broker programs as well. 
Contact Mazuma at info@mazumacapital.com 801-816-0800