CYRET ADDRESSES ASC 842 REQUIREMENTS FOR COMPANIES AND PUBLIC ENTITIES

Join us for Free Webinar on 10th May 2019 at 14:30 EST
to learn what you need to do, and how we can help.

Overview

Companies have typically used Leases to utilize assets without having to have them appear on their balance sheet. It is estimated that in the U.S. there are $500B in off balance sheet lease obligations, almost 3.5% of the S&P 500 market value.

As of January 1, 2019 new FASB regulations will change the financial treatment of many leases for Public companies. Private companies will be required to begin addressing the new standards as of January 1, 2020.

The definition of what constitutes an Operating vs. Finance lease is the key change in the regulations. Operating leases will continue, for leases where companies are utilizing an asset which on a leases where the item will be returned to their owner. Capital leases will become more broader in focus and will be called Financial Leases.

Financial Leases will cover leases on items where they are effectively used to finance the purchase/use of capital items.

Why Buy when you can Lease?

Aristotle said – “Wealth does not lie in ownership but in the use of things”! And today, Leasing has grown tremendously in popularity and is the fastest growing form of capital investment. Airlines, computers, power, satellite any captive form of assets being used in industry along with most popular real estate industry are common most examples

Involved Parties

  • A lease is a contractual agreement between a lessor and lessee
  • Lessor is owner of the asset and grants Lessee a right to use the specific asset for a specified period of time under lease agreement.
  • In return of use of the property, the Lessee makes periodic Rental Payments over lease tenure.

Business Process Lease

  • Transfer of Ownership Test – If the lease transfers ownership to lessee, it’s a capital lease.

  • Bargain Purchase Option Test – Must allow the lessee to purchase the property at significantly lower price than fair value

  • Economic Life Test (75%) – Lease period equals or exceeds 75% of economic life of asset

  • Recovery Of investment test (90%) – PV of minimum lease payments equals or exceeds 90% of the fair value of asset

Finance leases must now be capitalized and depreciated on your financial statement. A lease is now a Finance lease if:

  • The lease is for greater than 12 months
  • Lease term is >= 75% of the items economic life
  • The present value of payments >= 90% of the fair leased item value

Changes have been made to JD Edwards latest editions of version 9.2 to support these new regulations. If you are currently using the JD Edwards system and have a significant number of leases to track this is the time to evaluate your leases and the method you are using to properly account, amortize. bill/pay and report on them.

Cyret Technologies is currently, along with their financial advisors, advising a number of global companies using JD Edwards on the business, financial and systems treatment of their Leases in 2019 and beyond.

Join us on our Webinar to learn:

  • How to determine if a lease is an Operating or Capital Lease under the new FASB regulations.
  • The difference between the FASB and IASB regulations.
  • The actions needed to quantify and adjust each lease for the new regulations.
  • JD Edwards functions that have been extended and added to address lease accounting for Lessors and Lessees.
  • Determining if your lease volumes, maintenance and version status support moving to 9.2.

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