ASC 842 in 2 mins

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  • 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:

  1. 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
  2. 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