ASC 842 Summary

Ready, set, go!

• Applies to all contracts deemed  a lease which is defined as:
  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.
• If the contract is in the scope of ASC 842 you are now required to present value (PV) the minimum value of lease payments similar to that of a capital lease under ASC 840
• This is now applicable to both operating and finance leases 
• You recognize a lease liability to reflect the future obligation of the lease payments and a right of use asset which reflects the benefit of having the leased asset. 
• Accounting for modification of the leases is tricky and will require knowledge of the standard
• NPV calculations are time-consuming especially with a portfolio of 30+ leases. The accountant will need to record:
  - Journals to reflect the changes in the month to month balances of the lease liability and right of use asset
  - The split between and principle and interest payments
  - Not miss any key dates, as they impact the lease accounting
  
  
• Two ways to comply with ASC 842:
  
• Manually in Microsoft excel: 
  a) Cheapest
  b) Most time consuming
  c) Requires intimate knowledge of the standard
  d) Suites lease portfolio of fewer than 5 leases
• Software solution:
  a) Far more cost-effective when a large lease portfolio e.g. 30+ lease
  b) Most accurate
  c) Time-efficient
  d) Document management included
  
• Numerous software solutions available to companies to assist in accounting:
  - LeaseAccelerator: has the most functionality and the highest price
  - LeaseQuery: not far behind lease accelerator and slightly cheaper
  - Cradle will be the most cost-effective intuitive solution you will find
  - The decision will be based on cost/functionality