USA ASC-842 Current Asset turned into a Finance Lease

[Corporate_Accountant]

If a current asset is turned into a Finance Lease, is it correct to fully disposal of the current asset and then set it us as ROU and amortize over the life of the ROU?

 

[Kat Maple]

Hi Corporate Accountant,

You are asking about a lease involving a current asset. Current assets are things like cash, accounts receivable, prepaid expenses and so on. It would be extremely unlikely to involve such things in a lease. Do you mean a lease involving a fixed asset?

Thanks

Kat

 

[Corporate_Accountant]

It was our fixed asset and is now a finance lease - a finance lease, also referred to as a capital lease or sales lease, is a type of commercial lease in which a finance company is the legal owner of an asset, and the user rents the asset for an agreed-upon period of time.

 

[BIG E]

Then it shouldn't be listed as an asset at all.
The asset and corresponding accumulated depreciation should be reversed out and net difference should be charged to some
profit/loss account.
The payments to the finance company are now expensed as paid.

 

[Kat Maple]

Hi All,

The above first needs a discussion of applying the five criteria to determine if this qualifies as a finance lease or an operating lease. For either one, an asset will be set up on the lessee’s books.

Hope this helps,

Kat

 

[Corporate_Accountant]

Then it shouldn't be listed as an asset at all.
The asset and corresponding accumulated depreciation should be reversed out and net difference should be charged to some
profit/loss account.
The payments to the finance company are now expensed as paid.

ASC 842 requires long terms finance leases to be on the balance sheet

 

[BIG E]

Why do you believe it's a "current asset" to begin with?
It's a fixed asset - if you know what that is.

 

[Corporate_Accountant]

Why do you believe it's a "current asset" to begin with?
It's a fixed asset - if you know what that is.

You are correct - it's a fixed asset.