
The new lease standard (Topic 842) is here and effective now. Manufacturing companies who lease assets will now record all (with minimal exceptions) leases as both...
The new lease standard (Topic 842) is here and effective now. Manufacturing companies who lease assets will now record all (with minimal exceptions) leases as both an asset and a liability. Prior to Topic 842, entities were only required to recognize leases classified as capital leases on the balance sheet. For leases classified as operating leases, payments were reflected in the financial statements as rent expense on the income statement and the lease commitments were included in the disclosures of the financial statements. Under the new standard, a lessee should recognize a liability to make lease payments on the balance sheet and a right-of-use asset representing its right to use the underlying asset for the lease term.
Questions Answered!
Many manufacturers have questions regarding this change, such as:
- Do I have to apply this standard if I report my financial statements on a tax basis of accounting or any other special purpose framework?
- What type of arrangements are in scope and out of scope for this new standard?
- I only have a few “small” leases. Do I really have to apply this new standard if I believe the impact will not be significant to my organization?
- I have short-term leases; do I have to apply this new standard to them?
- I have related-party leases, what is the big deal about these?
Please read this article for the answers to these questions and more.
Thank you to Airam Valdez for providing the content for this post.
Please also tune in to our blog each week in the month of July for more facts and guidance around the new lease standard, Topic 842.
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