The Financial Accounting Standards Board (FASB) on August, 17, 2010 released their "exposure draft" requiring companies to record nearly all leases on their balance sheets as a "right to use" asset, and a corresponding "future lease payment - liability". What does this mean to your business in layman terms? This proposal in essence does away with operating leases; all leases (unless immaterial) would be capitalized using the present value of the minimum lease payments. Therefore, businesses who in the past had off-balance sheet lease obligations, must now record these obligations on their balance sheet.
Another factor is what is the useful life of the equipment they are acquiring? If a company typically uses their equipment over a 3 year period and then upgrades to newer models, they probably would be better off leasing. For the last 10 years, 3 year lease rates have been very low and payments are very affordable compared to purchasing the equipment for cash or bank loan.
If you are typically holding equipment for 5 years or longer, paying cash or even a bank loan may be a better choice from a total cost of ownership perspective. You simply multiple the lease payments times the lease term (in months), plus the lease residual (buyout), plus the equipment return cost and compare that to the sum of the payments for a bank loan to determine the lowest total cost of ownership.
As part of FASB's announcement, the Board stated that in their view "the current accounting in this area does not clearly portray the resources and obligations arising from lease transactions." This suggests that the final result will likely require more leasing activity to be reflected on the balance sheet than is currently the case. In other words, many, perhaps virtually all, leases now considered operating are likely to be considered capital under the new standards. Thus, many companies with large operating lease portfolios are likely to see a material change on their corporate financial statements.
But you do have to be aware of and enquire thoroughly with the Lease Takeover Company regarding the costs of a Lease Takeover and the type of lease. You can also get many offers and incentives from the individual trying to get out of a lease. The Company will guide you on all procedures and paperwork involved in a Lease Transfer and getting the Car Lease transferred to your name. Almost all Lease Takeover and Lease Transfer Companies have websites where you can register and browse online for Vehicle/Cars in the listings for lease takeovers.
The FASB will accept public comments on this proposed change through December 15, 2010. If FASB makes a final decision in 2011 regarding this proposed change to lease accounting, the new rules will go into effect in 2013. Additionally, the staff of the Securities and Exchange Commission reported in a report mandated under Sarbanes-Oxley, that the amount of operating leases which are kept off the balance sheet is estimated at $1.25 trillion that would be transferred to corporate balance sheets if this proposed accounting change is adopted.
Another factor is what is the useful life of the equipment they are acquiring? If a company typically uses their equipment over a 3 year period and then upgrades to newer models, they probably would be better off leasing. For the last 10 years, 3 year lease rates have been very low and payments are very affordable compared to purchasing the equipment for cash or bank loan.
If you are typically holding equipment for 5 years or longer, paying cash or even a bank loan may be a better choice from a total cost of ownership perspective. You simply multiple the lease payments times the lease term (in months), plus the lease residual (buyout), plus the equipment return cost and compare that to the sum of the payments for a bank loan to determine the lowest total cost of ownership.
As part of FASB's announcement, the Board stated that in their view "the current accounting in this area does not clearly portray the resources and obligations arising from lease transactions." This suggests that the final result will likely require more leasing activity to be reflected on the balance sheet than is currently the case. In other words, many, perhaps virtually all, leases now considered operating are likely to be considered capital under the new standards. Thus, many companies with large operating lease portfolios are likely to see a material change on their corporate financial statements.
But you do have to be aware of and enquire thoroughly with the Lease Takeover Company regarding the costs of a Lease Takeover and the type of lease. You can also get many offers and incentives from the individual trying to get out of a lease. The Company will guide you on all procedures and paperwork involved in a Lease Transfer and getting the Car Lease transferred to your name. Almost all Lease Takeover and Lease Transfer Companies have websites where you can register and browse online for Vehicle/Cars in the listings for lease takeovers.
The FASB will accept public comments on this proposed change through December 15, 2010. If FASB makes a final decision in 2011 regarding this proposed change to lease accounting, the new rules will go into effect in 2013. Additionally, the staff of the Securities and Exchange Commission reported in a report mandated under Sarbanes-Oxley, that the amount of operating leases which are kept off the balance sheet is estimated at $1.25 trillion that would be transferred to corporate balance sheets if this proposed accounting change is adopted.
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Frank Miller has a Debt Consolidation Blog & Finance, these are some of the articles: The Factors To Consider Before Using A 401K Calculator You have full permission to reprint this article provided this box is kept unchanged.
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