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