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New Lease Accounting Rule Impact On Companies and Investors- Making Something Out of Nothing
By Investment Income for Life  •  June 13, 2019

The new accounting standard FRS116 on leases came into effect on 1st Jan 2019. The “right of use” asset model basically attempt to plug the loophole of off-balance sheet liabilities. Basically, for operating lease assets, companies are now required to capitalize the present value of future lease payments of such arrangement as a direct fixed asset and also to recognize a theoretical liability. This gives rise to a strange phenomenon whereby an arbitrary financing cost is also created monthly for the right of use of the asset during the unwinding of the interest component in the lease liability. From the cash flow statement perspective, companies now have to account for the monthly lease payments into (i) repayment of principal portion and (ii) the cost of financing the “right of use” asset. From a retail investor perspective, it does lead to massive confusion over the understanding of the traditional Statement...
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By Investment Income for Life
I am an Accountant by training and is currently working in a global MNC in the Supply Chain industry. During my free time, I enjoy reading up on topics such as stock investing, insurance planning and property investment. Since 2012, I have started penning down my thoughts on certain financial matters while striving to achieve financial independence.
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