Lessor Accounting

Lessor Accounting Vector

Lessor Accounting

Lessor Accounting Vector

The FASB’s new leases standard (Topic 842) has now been adopted by all public companies reporting under US GAAP, and most of those companies have issued their first set of annual financial statements under Topic 842. With these changes most of companies had quite a significant impact in the leasing industry. In the leasing business in over 30 years where in the previous instance many companies were using off-balance sheet financing to have leases and they were not required to report them on their balance sheet with the adoption of ASC 842.

The primary change to lease accounting is that organizations must recognize lease assets and lease liabilities on the balance sheet for most of their lease arrangements. Lessors will mirror the accounting on the lessee side, recognizing a lease receivable and deferred inflow of resources. The governing boards created new standards for lease accounting based on feedback from investors and users of financial statements requesting more visibility regarding future lease obligations and lease receivables.

ASC 842 Lessor Accounting –
Not as many changes for Lessor

  • Lessor will determine lease classification based on whether the lease is effectively a financing or a sale, rather than an operating lease

  • Assessing whether the lease transfer substantially all the risks and rewards incidental to ownership of the underlying assets

  • Lessor will account for the leases using an approach that is substantially equivalent to existing U.S GAAP for the sales-types leases, direct financing leases and operating leases.

  • Lessor will also see an effect on their financial statements and disclosures. The profit recognition requirements under lessor model match those under the new revenue recognition requirements, issued by the FASB.

ASC 842 Lessor Accounting

ASC 842 Lessor Accounting – Not as many changes for Lessor

  • Lessor will determine lease classification based on whether the lease is effectively a financing or a sale, rather than an operating lease

  • Assessing whether the lease transfer substantially all the risks and rewards incidental to ownership of the underlying assets

  • Lessor will account for the leases using an approach that is substantially equivalent to existing U.S GAAP for the sales-types leases, direct financing leases and operating leases.

  • Lessor will also see an effect on their financial statements and disclosures. The profit recognition requirements under lessor model match those under the new revenue recognition requirements, issued by the FASB.

ASC 842 Lessor Accounting

ASC 842 and Lessor Accounting Model

Topic 842 retains same basic lessor accounting model

A lessor will classify leases as (1) sales-type, (2) direct financing, or (3) operating using criteria similar to Topic 840. Leveraged lease
classification, however, will be eliminated prospectively.

Balance sheet

Income statement

Cash flow statement

Sales-type and direct financing leases

  • Recognize net Investment in the lease

  • Derecognize the underlying asset

  • Selling profit (loss)

  • Interest income over the lease term

  • Cash received from leases classified as operating cash flows

Operting leases

  • Continue to recognize the underlying asset

  • Lease income generally on a straight-line basis over the lease term

  • Cash received from leases classified as operating cash flows

ASC 842 and Lessor Accounting Model

Topic 842 retains same basic lessor accounting model

A lessor will classify leases as (1) sales-type, (2) direct financing, or (3) operating using criteria similar to Topic 840. Leveraged lease
classification, however, will be eliminated prospectively.

Sales-type and direct financing leases

Balance sheet

  • Recognize net Investment in the lease

  • Derecognize the underlying asset

Income statement

  • Selling profit (loss)

  • Interest income over the lease term

Cash flow statement

  • Cash received from leases classified as operating cash flows

Operting leases

Balance sheet

  • Continue to recognize the underlying asset

Income statement

  • Lease income generally on a straight-line basis over the lease term

Cash flow statement

  • Cash received from leases classified as operating cash flows

ASC 842 and Lessor Disclosures

The disclosure objective of Topic 842 is to provide financial statement users sufficient information to assess the amount, timing, and uncertainty of cash flows arising from leases.

To achieve that objective, a lessor’s disclosures will include:

Qualitative

  • Significant accounting judgements and estimates

  • Information about the nature of leases, such as the nature of variable payment arrangements, and termination, renewal, and purchase options

  • Information about how the lessor manages residual asset risk, including information about residual value guarantees and other means of limiting that risk

Quantitative

  • Maturity analysis of lease receivables for sales-type and direct financing leases and of lease payments for operating leases

  • Selling profit (loss) recognized at lease commencement and interest income for sales-type and direct financing leases

  • Operating lease income

  • Variable lease income

ASC 842 and Lessor Disclosures

The disclosure objective of Topic 842 is to provide financial statement users sufficient information to assess the amount, timing, and uncertainty of cash flows arising from leases.

To achieve that objective, a lessor’s disclosures will include:

Qualitative

  • Significant accounting judgements and estimates

  • Information about the nature of leases, such as the nature of variable payment arrangements, and termination, renewal, and purchase options

  • Information about how the lessor manages residual asset risk, including information about residual value guarantees and other means of limiting that risk

Quantitative

  • Maturity analysis of lease receivables for sales-type and direct financing leases and of lease payments for operating leases

  • Selling profit (loss) recognized at lease commencement and interest income for sales-type and direct financing leases

  • Operating lease income

  • Variable lease income

Simplify, Automate and Optimize your compliance with the New Lease Accounting Standard solution with SAP Contract & Lease Management (CLM). Leverages What You’ve Already Invested.

The SAP Lease Administration solution is a full “End to End” Lease accounting lifecycle management solution specifically designed to manage accounting and compliance to both the current and new Lease Accounting standards. The solution is designed to control all aspects of the accounting required for both US GAAP and IFRS current and new standards and as such will provide the required accounting entries, fixed asset entries, and disclosure/parallel reporting. The solution has been reviewed by one of the Big 4 Accounting firms and certified for meeting compliance with current and new accounting standards

The New Common Regulations for Contract and Lease Management drives significant change as follows

  • New standard on leasing released by FASB and IASB

  • Every IFRS/ US-GAAP reporting company renting real estate or leasing equipment will be impacted

  • Large companies with big property portfolio are affected most and need to react quickly to prepare

The New Common Regulations

Simplify, Automate and Optimize your compliance with the New Lease Accounting Standard solution with SAP Contract & Lease Management (CLM). Leverages What You’ve Already Invested.

The SAP Lease Administration solution is a full “End to End” Lease accounting lifecycle management solution specifically designed to manage accounting and compliance to both the current and new Lease Accounting standards. The solution is designed to control all aspects of the accounting required for both US GAAP and IFRS current and new standards and as such will provide the required accounting entries, fixed asset entries, and disclosure/parallel reporting. The solution has been reviewed by one of the Big 4 Accounting firms and certified for meeting compliance with current and new accounting standards

The New Common Regulations for Contract and Lease Management drives significant change as follows

  • New standard on leasing released by FASB and IASB

  • Every IFRS/ US-GAAP reporting company renting real estate or leasing equipment will be impacted

  • Large companies with big property portfolio are affected most and need to react quickly to prepare

The New Common Regulations

Benefits of SAP CLM

Benefits of SAP CLM

Why choose Bramasol?

Don’t settle for a solution that is less than the best or a partner who isn’t the leader. With SAP and Bramasol, you get both. SAP Contract and Lease Management is the only one certified by a Big 4. With Bramasol and SAP CLM we can make it all possible. With deep expertise in lease accounting, we are not only product experts, but solution experts who help guide you through the process of selecting, designing, implementing and supporting your lease solution to obtain maximum value, quickly and cost effectively.

Why choose Bramasol?

Don’t settle for a solution that is less than the best or a partner who isn’t the leader. With SAP and Bramasol, you get both. SAP Contract and Lease Management is the only one certified by a Big 4. With Bramasol and SAP CLM we can make it all possible. With deep expertise in lease accounting, we are not only product experts, but solution experts who help guide you through the process of selecting, designing, implementing and supporting your lease solution to obtain maximum value, quickly and cost effectively.

Why Bramasol