ASC 842 will bring change, but the power of leasing remains
Jul 17, 2019
This year marks a time of change for equipment and technology suppliers and lessees. The new U.S. ASC 842 accounting standard has already taken effect for publicly traded companies and is required for private companies by 2020. For the first time ever, nearly all lease obligations must be listed as assets and liabilities on company balance sheets.
Adoption is complex. But while meeting the standard requires new processes and reporting capabilities, leasing advantages still remain strong.
1. Delivers less balance sheet impact than borrowing
Leasing minimizes balance sheet impact through fair market value leasing of high-value equipment and technology. Plus, operating lease rental costs are still considered an operating expense in the Profit & Loss Statement.
2. Shows operating leases as non-debt liabilities
Operating leases are not shown as funded debt on the balance sheet. They are recorded as non-debt liabilities.
3. Drives sales as a one-stop shop for equipment and financing
Want to create an elevated customer experience? You can sell more equipment faster and smarter by offering the convenience of equipment and financing under one roof.
4. Provides flexibility for upgrades and customizable payment structures
Leases can be structured to meet unique customer needs and cash flow patterns. Plus, equipment and technology leasing offers opportunity for equipment upgrades and can include the costs for service and maintenance contracts.
5. Offers the same great tax benefits as ever
More good news! Operating Lease costs generally remain tax deductible. Only the accounting treatment is new.
6. Decreases ownership risk for lessee
Customers rely on up-to-date technology to run their businesses. Leasing helps ensure equipment remains current—and there’s no obligation to purchase an asset or face a disposal risk at the end of leasing term. Assets can be purchased at a fair market value or returned to the lessor when the lease is up.
Many organizations are still determining how to meet the new lease accounting standards, but there are resources at your fingertips to make the process easier. Check out our Changes in Accounting for Leases guide for more information on ASC 842.
*ASC 842 applies only to lease accounting standards in the United States. For information on changes in Europe and Asia, visit our IFRS 16 information page.
[DISCLOSURE]
The information provided in this blog does not constitute tax, accounting or legal advice. Please contact your own independent tax, accounting or legal advisor who considers all relevant aspects of your particular business and products.