Practical Update on New Lease Accounting

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Practical Update on New Lease Accounting

Monday, December 30, 2019

4.8 (12)

Presenter :Jim Woy, CPA

Company :Anderson Zurmuehlen & Co PC

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Course Details

Overview of Topics

Summarizes key accounting guidance regarding the accounting for leases under ASC Topic 84210 mins
Review implementation options18 mins
Review the definition of a lease20 mins
Distinguish between an operating lease and financing lease23 mins
Review the basic accounting entries to record an operating and capital lease29 mins
Review practical examples to help illustrate the key points of determining whether a lease component is present in a contract, variable lease payments and lease modifications68 mins

Course Description

The FASB issued Accounting Standards Codification Topic 842 (ASC 842), which is effective in 2019 for public companies. ASC Topic 842 will substantially alter how companies account for leases in their financial statements. This new standard will affect any entity that enters a lease and will force organizations to evaluate their accounting policies, procedures, controls, and systems. This webinar will prepare you for the financial reporting challenges that the new guidance will impose on all financial statement prepares.

HIGHLIGHTS OF THE WEBINAR:

Best practices for transitioning to the new rules.
Discover new disclosure requirements for lessees and lessors
Examine the accounting for sale/leaseback transactions
Explore the impact of the new rules on financial reporting of income taxes and leases acquired in a business combination

Learning objectives

Understanding of New Lease Accounting Model.
Accounting guidance for the Update as per ASC 842.
To know different types of Key Exemptions.
Practical Expedient Election for Lessor and Lessees.
Key details on the modifications in lease, lease with government entities or authorities, and related party leases.

About Presenter

Jim Woy, CPA

Partner,Anderson Zurmuehlen & Co PC

jwoy@azworld.com

Jim Woy, CPA, is a provider of auditing, accounting, and financial reporting services. Jim also performs peer reviews and presents numerous continuing education courses in the audit and accounting field. He also oversees tax services for corporations, partnerships, individuals, and nonprofit organizations. His service concentrations are government, nonprofit, construction, and health care.

With 39 years in public accounting, Jim is a member of the American Institute of CPAs (AICPA) and was awarded the 2013 and 2014 Outstanding Instructor award from the AICPA. He is also a member of the Montana Society of CPAs and the Butte Chapter of the Montana Society of CPAs. In addition, Jim is an adjunct instructor of auditing at Montana Tech and the University of Montana MAC program. He graduated from the University of Montana with a Bachelor of Science in Accounting and is an enthusiastic runner in his spare time. Jim serves on the AICPA Oversight Task Force. Jim is also the past president of the Butte Family YMCA and the Butte Exchange Club, and is a technical reviewer for the Nevada Peer Review Committee. Jim has been married for 42 years to his wife Kate and has two daughters, Ashley and Alyssa, and six grandchildren. Jim is a diehard Chicago Cubs fan.

Anderson Zurmuehlen & Co PC

azworld.com

Anderson ZurMuehlen & Co., P.C., is a certified public accounting and business advisory firm, headquartered in Helena, Montana, United States. The firm has a professional affiliation with BDO Alliance, an international association of independent accounting and law firms

Review Questions

Question 1 : 00:15
Question 2 : 00:32
Question 3 : 00:49
Question 4 : 01:10
Question 5 : 01:22
Question 6 : 01:40

Review Questions
Final Quiz

Which of these does not necessitate the classification of lease as finance lease?
- Title does not pass at the end of the lease
  The title passes at the end of lease for it to be classified as finance lease
- Payments represent substantially all of the asset’s fair value
  it is one of the criteria for the lease to be classified as finance lease
- The lease term is for the major part of the asset’s remaining economic life
  it is one of the criteria for the lease to be classified as finance lease
- The underlying asset is of such a specialized nature that it is expected to have no alternative use
  it is one of the criteria for the lease to be classified as finance lease
In July. 2019, the FASB delayed the implementation of the new Lease accounting standard for how many years
- Four
  This is incorrect as the correct answer is one
- One
  Correct
- Two
  This is incorrect as the correct answer is one
- Three
  This is incorrect as the correct answer is one
Which among these is not a key factors of determining lease classification?
- Seventy-five percent or more of the remaining economic life of the underlying asset is a major part of the remaining economic life of that underlying asset.
  This is incorrect as it is one of the key factors determining the lease classification
- A commencement date that falls at or near the end of the economic life of the underlying asset refers to a commencement date that falls within the last 25 percent of the total economic life of the underlying asset
  This is incorrect as it is one of the key factors determining the lease classification
- Fifty percent or more of the fair value of the underlying asset amounts to substantially all the fair value of the underlying asset
  This is correct as for lease classification, ninety not fifty percent or more of the fair value of the underlying asset amounts to substantially all the fair value of the underlying asset
- Ninety percent or more of the fair value of the underlying asset amounts to substantially all the fair value of the underlying asset.
  This is incorrect as it is one of the key factors determining the lease classification
If a lessor makes an accounting policy election to use the practical expedient to not separate non lease from lease components for its leased equipment, what requirement must not be met to elect this practical expedient?
- Non lease components would otherwise be accounted for under new revenue standard (Topic 606) Lease component is an operating lease not capital
  This is mandatory if practical expedient election is done by the lessor
- Timing and pattern of non-lease components are different than lease components
  Timing and pattern of non-lease components are same as lease components
- Timing and pattern of non-lease components are same as lease components
  This is mandatory if practical expedient election is done by the lessor
- Additional Footnotes are required.
  This is mandatory if practical expedient election is done by the lessor
Which of these factors determine whether a contract is or contains a lease?
- If the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for an unspecified period of time in exchange for consideration.
  This answer is incorrect as the time cannot be unspecified. It has to be pre decided or a set amount of time for the contract to be considered a lease
- If the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.
  This answer is correct as it includes every aspect that is required for a contract to be considered a lease namely an asset, a period of time and the consideration
- If the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for an unspecified period of time
  This answer is incorrect as the time cannot be unspecified. It has to be pre decided or a set amount of time & exchange of consideration are required for it to be considered a lease
- If the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset)
  This answer is incorrect as the period of time & exchange of consideration are required for it to be considered a lease
Why are leases with Government Entities or Authorities mostly classified as operating leases?
- . Because of special provisions normally present in leases involving terminal space and other airport facilities owned by a governmental unit or authority, the economic life of such facilities for purposes of classifying a lease is essentially indetermina
  This is the correct answer
- Because of special provisions normally present in leases involving terminal space and other airport facilities owned by a governmental unit or authority, the economic life of such facilities for purposes of classifying a lease is easily determined.
  This answer is incorrect as the economic life of such assets is essentially indeterminate.
- It is very easy to determine the fair value of the underlying asset
  This answer is incorrect as it may not be practicable to determine the fair value of the underlying asset.
- Such leases provide for a transfer of ownership or a purchase option that the lessee is reasonably certain to exercise
  This answer is incorrect as it is impracticable to determine the fair value of the underlying asset and such leases also do not provide for a transfer of ownership or a purchase option that the lessee is reasonably certain to exercise and as such they should be classified as operating leases.

Minimum 70% Questions answer should be right.

The effective date to implement ASC Topic 842 is
- Years ending on or after 12-15-2020.
- Years beginning on or after 12-15-2019
- Effective for years beginning on or after 12-15-2020
- None of the above
The full retrospective approach to implementing ASC Topic 842 entails
- Restating all years presented in the reporting package
- Restating the current year of adoption and allowing earlier years to be reported under extant standards
- Not restating any periods – Adjustments to revenue will occur prospectively.
- None of the above.
ASC Topic 842 applies to
- Lease components of contracts
- Operating leases
- Financing leases
- All of the above
The following criteria should be met for a lease contract to meet the definition of a financing lease under Topic 842 , except for
- Lease payment represents substantially all the asset’s fair value at lease inception
- The lease contains a bargain purchase element
- The lease term covers substantially all of the asset’s economic useful life
- The lease contract has commercial substance.
Under Topic 842, an operating lease requires all of the following, except
- The lessee to record an intangible asset referred to as a right of use asset
- The lessee records a liability determined based on the lease term including option deemed reasonably certain to be exercises and lease payment amounts
- The Lessee records amortization expense and interest expense on the income statement rather than rent expense
- All of the above.
Under Topic 842, a financing lease requires all of the following
- The lessee to record an intangible asset referred to as a right of use asset
- The lessee to record a liability determined based on the lease term including option deemed reasonably certain to be exercised and lease payment amounts
- The Lessee to record amortization expense and interest expense on the income statement rather than rent expense
- All of the above.
• At the commencement of the lease contract, the lessee will:
- Determine if its reasonably certain the option years under the lease will be exercised
- Only record the right of use asset based on the fixed term of the lease, excluding options
- Contract modifications that occur later in the lease can be retroactively applied back to the original lease
- All of the above.
Lessee will generally
- Not account for variable lease payments at the commencement of the lease
- Treat property taxes as variable payments
- Treat all lease modifications as adjustments back to the lease commencement date
- All of the above.
Related party leases
- Are accounted for under Topic 842 similar to all other lease components in a lease contract
- Are carved out of ASC Topic 842
- Are always treated as operating leases under Topic *42
- None of the above.
Practical expedients are addressed in Topic 842 addressing
- Short term practical expedient ghjhg
- Hindsight practical expedient
- Hindsight practical expedient
- All of the above

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4.8

(12)

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Cost $20
CPE Credits 2
Subject Area Accounting
Course Level Basic
Instructional Method QAS Self Study
Prerequisites None
Advanced Preparation None
Recorded Date December 30 ,2019
Published Date January 09 ,2020
Who should attend? Bookkeeper Accountant CPA - Small Firm CPA - Mid Size Firm CPA - Large Firm Accounting Firm Young CPA CPA in Business Entrepreneurial CPA Accounting Practice Owners Senior Accountant VP Accounts Accounts Director Cloud Accountants Chief Accounting Officer Entrepreneurial Accountant Accounting Managers
Handout Material Download
Key Terms Download

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