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How will US GAAP accounting for leveraged leases change?

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The specialized accounting currently afforded leveraged leases under US GAAP will be eliminated when the new standard on lease accounting goes into effect in 2019.  Under the new standard, all new and existing leveraged leases will be accounted for as either a Type A (finance) or Type B (operating) lease, as for all lease transactions.

As of the effective date, the lessor will be required to:

  1. Record a lease receivable equal to the gross investment in the lease;
  2. Consider the impact of any third-party residual value guarantee when estimating its residual value: and
  3. Record the nonrecourse debt at its outstanding principal amount, net of any unamortized debt issuance cost and accrued interest.

The effective date for the new standard will be:

  • For public business and certain not-for-profit entities and employee benefit plans, fiscal years beginning after 15 December 2018, including interim periods within those years; and
  • For all other entities, fiscal years beginning after 15 December 2019 and interim periods thereafter.

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