Accounting for Leases with Termination Options

Notice of Termination

In our last blog, we explained how to account for leases where the tenant must take additional property (or expand) in the future. Today’s blog addresses accounting for leases which include a termination at will option. It was inspired by the following question we received:

We have a lease with a landlord with escalated lease payments. However, the lease also comes with a termination right, which states “Tenant shall have the one-time right to terminate the lease at certain date”. Since there is no termination penalty and we have not installed any leasehold improvements, we assume we will terminate the lease at will. Since between the commencement date and termination date, there is no rent escalation, no straight-line schedule was prepared. Now the deadline to submit the termination notice has passed and we decided not to terminate. Does that mean we should start to prepare the straight-line schedule? Since the commencement date has been long passed, I am guessing we would have to true up the straight-line receivable to what it should be as of today assuming there is no termination right at all. Could you shed some light on this situation? Please let me know if I didn’t make it clear for you to understand. Thanks a whole bunch!

This is an excellent question, and as is always the case with excellent questions, there are significant accounting implications here. To address this, we will discuss the underlying accounting first, then, as we always do with our blogs, we will follow up with a comprehensive example.

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.

Using Excel to Calculate Present Value of Minimum Lease Payments

NPV for excel

This is the ONE thing you MUST be able to do under the new lease accounting rules:
The new lease accounting rules require the vast majority of leases to be capitalized, and the capitalized amount is calculated as the present value of the lease payments. It goes without saying, therefore, that to comply with the new lease standard, you will need to know how to calculate the present value of lease payments. This is especially true if you do not plan on using software, and plan on continuing to use excel spreadsheets to manage your leases. While we think managing your leases in excel is a bad idea (see our post about that here), if you choose to use excel, we can at least help you use it correctly. 

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.

Accounting for Subleases under GAAP: The CORRECT way

Accounting-for-Subleases

Have you ever leased a space, decided you no longer require it, then subleased the space to a third party? Did you continue making payments to the landlord under the initial lease while collecting payments from the third party under the sublease? Did you account for this transaction correctly under GAAP? Are you willing to bet on it? Better yet, are you willing to bet your job on it?

We are. We are willing to bet that if you have a Sublease, YOU’RE ACCOUNTING FOR IT INCORRECTLY. In this blog, we will explain the correct accounting for subleases under current GAAP, using a comprehensive example with actual numbers. We write detailed blogs like this to demonstrate that our experts at LeaseQuery are not just real estate professionals, but lease accounting experts. We understand the challenges faced by real estate professionals AND accounting departments. Our lease management software reflects our expertise.

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.

Effective Date SET for New Lease Accounting Rules!!!

FASB

On November 11, 2015, the FASB set the effective date for the proposed new leasing standard; it is effective in 2019 for public companies and 2020 for private companies. Early adoption is permitted. The final standard is to be published in early 2016.

Click here to continue reading.

About LeaseQuery:  LeaseQuery is lease accounting 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.  Visit us at www.LeaseQuery.com

How To Identify Contracts With Embedded Leases

The following decision tree shows how to determine if a service contract has an embedded lease. Click here for a detailed explanation of the decision tree. It explains in detail implicit and explicit identification, right of substitution and transfer of control.

Lease Decision Tree

The tree above helps you determine if there is a lease embedded within a service contract. For a detailed explanation of this lease decision tree (including a discussion on implicit and explicit identification, explanation of the concept of transfer of control, and the right of substitution), click here.