The new proposed lease - Research Paper Example

The liabilities and assets are indicated on balance sheet and the assets are depreciated (Ellis & Peppin, 2007). The lease obligations are amortized over the passage of as debt. However, according to the new lease accounting rules, the assets and liabilities are not expressed in the balance sheet and payments of lease are calculated in accordance with the straight-line method. In particular, the operating leases are treated as liabilities and assets in the off-balance sheet (Narayananswamy, 2008; Ellis & Peppin, 2007).

The new standard for lease accounting has changed the way in which leases are maintained for the accounting purposes. The changes behind the theory are depicted by FASB. These changes are made in order to help the companies recognize their assets and liabilities from the leases. The changes are expected to improve the existing lease requirements. According to the new lease accounting strategy, a particular lessee should consider net present value (NPV) of the lease payments as the liability.

It should also identify the right to employ the asset, which represents the payments of lease that are attributable over the time period of lease (Narayananswamy, 2008). Type A:  This lease aims at identifying front-load expenses that are expressed in the income statement. It deals with most of the lease assets other than properties that are owned by the lessee i.e. vehicle and equipment and vehicles. This type of leases is predicted to cover an important part of the useful life of the asset or present value (PV) of lease payments.

The PV of the lease payments effectively identifies the fair value of underlying assets. Type A leaseholders recognizes the right-to-use asset and lease liability that are measured as PV of the lease payments in future. The leaseholders should also evaluate the relaxation that is obtained from discount on lease liability. The interests are calculated separately from that of amortization of