How to Account for Lease Amendments that Expand the Leased Premises

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In a prior post, we explained how to account for leases when the tenant MUST expand the premises under the terms of the initial lease. In this blog post, we will explain how to account for a lease when the tenant expands a lease, but that expansion was NOT required under the terms of the initial lease. That is, how to account for a lease when the tenant leases a space, decides it needs to expand, and then signs an amendment to the initial lease expanding the leased space.  Once again, the difference between this scenario and the prior post we wrote is that in the prior scenario, the tenant was obligated to take the additional space under the initial lease. Under this scenario, the tenant decided to expand the leased premises but it had no obligation to do so.

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About LeaseQuery:  LeaseQuery is lease management software that helps companies manage their leases.  Rather than relying on excel spreadsheets, our clients use LeaseQuery to get alerts for critical dates (renewals, etc), calculate the straight-line amortization of rent and TI allowances per GAAP, provide the required monthly journal entries (for both capital and operating leases) and provide the commitment disclosure reports required in the notes and the MD&A.  Contact us here.

How To Transition From Current to the New Lease Accounting Rules: A Comprehensive Example.

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This week’s blog is a comprehensive example explaining how to transition from current GAAP to the new lease accounting standards. We will be using a real life scenario that one of our clients graciously allowed us to use as an example.  We have a lot to cover, so let’s get right to it.

Assume a Tenant signs a lease document with the following predicates:

Lease Term: A term commencing on April 1, 2016 (Commencement Date) and continuing for one-hundred-twenty (120) full calendar months. Tenant shall be granted access to the Premises sixty (60) days prior to the Commencement Date to install equipment and furnishings (the “Early Access Period”). Such access shall be subject to all the terms and conditions of this Lease, except that the Commencement Date and the payment of Rent shall not be triggered thereby. 

TI Allowance: The tenant received a Tenant Improvement Allowance of $1.2 Million as an incentive to sign the lease from the landlord.  The landlord paid the contractor directly for the construction of the Improvements. The improvements were constructed prior to the Early Access Period.

Moving Expenses: The tenant also received a reimbursement of $30,000 in moving expenses from the landlord.

Base Rent: Per the lease document, the rent commencement date is 3 full calendar months after the tenant opens for business at that location. Base rent is $205,000/month; with annual increases on the anniversary of the rent commencement date of 3%.

Assumptions: Assume that the lease is classified as an operating lease, assume that the tenant is a public company, assume that the rate inherent in the lease is unknown, and the fair value of the building is $300 Million. Assume the Tenant opened for business at the location on June 1, 2016. Assume that if the company tried to borrow $300 Million (to purchase the building) its borrowing rate would be 9% in 2019, but if the company tried to borrow $27 Million (the amount of the total lease payments) its borrowing rate would be 6% in 2019.

Here are the steps to take to transition from Current GAAP to the new lease accounting standards issued by the FASB:

To continue reading, click here.

About LeaseQuery:  LeaseQuery is lease management software that helps companies manage their leases.  Rather than relying on excel spreadsheets, our clients use LeaseQuery to get alerts for critical dates (renewals, etc), calculate the straight-line amortization of rent and TI allowances per GAAP, provide the required monthly journal entries (for both capital and operating leases) and provide the commitment disclosure reports required in the notes and the MD&A.  Contact us here.

How to Create a Lease Liability Amortization Schedule Under New Lease Rules

Amortization Schedule

Last week’s blog focused on one important thing: How to calculate the present value of lease payments using excel spreadsheets. This week, we will show you how to calculate the present value of minimum lease payments AND prepare the liability amortization schedule for the lease liability in the same step, using excel. Let us stress that this information is important not just for companies that plan on continuing to use excel spreadsheets for lease management. It is also a useful tool for those of you that plan on using lease accounting and lease management software, as you can use the information in this blog to ensure that your chosen software provider is actually performing this calculation accurately.  So basically, with the method we explain below, you will have everything you need to comply with the new lease rules powered only by an excel spreadsheet. Next week’s blog will feature a comprehensive example of how to transition from current lease accounting rules to the new lease accounting standards, and we will be referencing the methods utilized in this blog for our calculations.  For now, here are the steps to follow to calculate the present value of lease payments AND the lease liability amortization schedule using excel, when the payment amounts are different.

To continue reading, click here.

About LeaseQuery:  LeaseQuery is lease management software that helps companies manage their leases.  Rather than relying on excel spreadsheets, our clients use LeaseQuery to get alerts for critical dates (renewals, etc), calculate the straight-line amortization of rent and TI allowances per GAAP, provide the required monthly journal entries (for both capital and operating leases) and provide the commitment disclosure reports required in the notes and the MD&A.  Contact us here.

Key Differences Between Current GAAP and The New Lease Standard

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Key Differences Between Current GAAP and The New Lease Standard

In this post we will address the differences between current GAAP and FASB’s new lease accounting standard, with a focus on lessees. Note that unlike other blogs covering accounting for leases, we won’t simply state the obvious, which is that all leases will be capitalized, no grandfathering, and an exemption for short term leases. Instead, we will actually cover some very important differences between the current and newly proposed lease accounting rules. For instance, we will address differences that could cause a company to end up with a different liability when the exact same lease is capitalized under the new lease accounting rules versus capitalization under current GAAP. These differences could have a significant impact on your lease portfolio during the transition period. Let’s get started:

To continue reading, click here.

About LeaseQuery:  LeaseQuery is lease management software that helps companies manage their leases.  Rather than relying on excel spreadsheets, our clients use LeaseQuery to get alerts for critical dates (renewals, etc), calculate the straight-line amortization of rent and TI allowances per GAAP, provide the required monthly journal entries (for both capital and operating leases) and provide the commitment disclosure reports required in the notes and the MD&A.  Contact us here.

6 Myths About the New Lease Accounting Rules!

Uncover The Facts

This post addresses the biggest misconceptions about the new lease accounting rules.

Myth 1: All Leases will be affected.

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About LeaseQuery:  LeaseQuery is lease management software that helps companies manage their leases.  Rather than relying on excel spreadsheets, our clients use LeaseQuery to get alerts for critical dates (renewals, etc), calculate the straight-line amortization of rent and TI allowances per GAAP, provide the required monthly journal entries (for both capital and operating leases) and provide the commitment disclosure reports required in the notes and the MD&A.  Contact us here.