In its second article in a two-part series on lease accounting changes, Workboat magazine describes how the new rules are not dimishing the benefits to leasing and financing marine equipment and why the strategy remains strong.
Compared to the accounting treatment of a traditional loan or purchase transaction, leasing equipment is still a prudent equipment acquisition strategy. Here’s why:
- An asset value is booked equal to the present value of rents as “right-of-use (ROU),” and an offsetting liability entered as “obligation to pay.”
- Because the liability is considered non-debt (other debt), it may not jeopardize debt limit covenants.
- Operating leases are residual-based structures. Consequently, the asset and liability recorded will probably be less than the cost of the asset. This yields a lower on-book balance than does financing with a traditional loan.
In addition, leasing continues to provide a host of advantages, including maintaining cash flow, tax benefits, maximizing flexibility, improving asset management and convenience.
Although the new rules don’t go into effect for another two or three years, workboat operators should take a closer look at processes, collect data and start planning now.
To learn more, check out the full article here: