Traditionally under U. S. GAAP, businesses distinguished between operating and capital/finance leases. If a lease agreement met one or more of a classification criterion it would be considered a capital lease. The criterion includes, a title transfer, a bargain purchase option, a lease term of 75% or more of expected life, and present value of the minimum payments greater than or equal to 90% of the future value of the asset. However, the proposed IFRS standards eliminate operating leases. “Under the proposed model, all leases are essentially treated the same for lessees and in a manner more akin to the traditional capital/finance lease mode” (Deloitte, 2011).
The business can usually deduct the full cost of lease rentals from taxable income · Freedom. You'll be able to sublet and move to another location if you need or want to, with no hassle of selling before you can move and no loss from owning a building in a bad real estate market. if you use an operating lease or contract hire, you may not have to worry about maintenance · More time and money. You'll be free from the headaches and cost of maintaining your own building, with more time to focus on running your business. You pay for the asset over the fixed period of time that you use it, which helps you budget for the future.
Next, each item commitment quantity was calculated using its contribution margin and its total contribution in dollar to the revenue of the company. For e.g. if an item had a margin of $15 if sold, and $5 loss if not sold, the commitment value would be 0.75. Hence the optimal stock to keep would be three quarters of the probability of demand. If for instance, the corresponding error for 0.75 is 1.3, the optimal stock to keep for that item would be 1.3 * frozen forecast.
What criteria must be met by the lease in order that Doherty Company classify it as a capital lease? 1. Transfer of ownership at end of lease 2. Bargain purchase option 3. Lease term is 75% or more of the estimated economic life of the asset 4.
At inception, the terms of the lease were consistent with fair market rentals. The lease is the only contractual relationship between FastCar and Real Estate. II. Financial Reporting Issue or Issues presented in the case Does FastCar, the lessee (arrendatario) under the operating lease, hold a variable interest in Real Estate, the lessor (arrendador) entity? III.
The categorization of every lease will not depend on whether a company, bank or person to have legal ownership of the asset, it would depend only if the third party considerably has all the risk and rewards of the ownership. Operating lease payments are made on a straight line basis. Changes in the lease classification will change the will affect the debt equity. When determining whether a lease is operating or a finance lease there need to be increased judgment because there are no strict classification requirements. Lessees are obligated to recognized assets and liabilities for all leases which would eliminate the operating lease accounting.
But purchase does not reduce net cost of lease. Availability of expert service: The owner of the equipment maintains the equipment to ensure a sense of ownership thereby taking the burden off the lessee. The purchaser tends to maintain the equipment himself. Test equipment: Lease enables the lessee test the equipment to be sure it is the right one to eventually purchase. On the contrary, purchase might mean buying equipment and realising that it is not what the buyer expected.
C42 PRINCIPLES AND PRACTICE OF MARINE INSURANCE SUMMARY NOTES 2001 [pic] STUDY 1 Functions of Marine Insurance: 1 Spread of Risk: Share the losses of a few among the many. Indemnity: If a loss occurs, the Insured will be put back into the same financial position as just prior to the loss. The Insured must not profit from the loss. Most policies are on an actual cash value (ACV) basis (the value of an equivalent piece of property of the same age and condition and subject to the same wear and tear as the property that was lost or destroyed). 2 Aid to Security: Removes uncertainty of a potential financial loss; individuals & businesses are more free to expand without need to set aside reserves for future losses.
According to paragraph 605-50-25 certain sales incentives entitle a customer to receive a reduction in the price of a product or service of a specified amount of a prior purchase price charged to the customer at the point of sale. A vendor shall recognize a liability for those sales incentives at the later of the date at which the associated revenue is recognized by the vendor or the date at which the sales incentive is offered based on the estimated amount of refunds or rebates that will be claimed by customers.
Several additional documents were put into place over the years, as referenced in Table 1 below. This ultimately led to the adoption of FAS 13 Accounting for Leases by the FASB, which is used today. Before FAS 13 was adopted, the Securities and Exchange Commission (SEC) had gotten involved and initiated the subject of improving accounting standards for leasing. This is evidenced in a speech made by former Chairman of the SEC, G. Bradford Cook in which he stated “The accounting profession has probably failed to keep up with the phenomenal growth and complexity of lease arrangements.” In addition, a speech by the Associate Director of the SEC San Francisco office, L. Rosen stated that “The accounting profession should be concentrating on building new principles while reinforcing old bridges with additional disclosure.” (Palmon, 2009) The SEC not only initiated the