New Standards from GAAP and IFRS Result in Significant Differences

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) began a joint project in 2006 intended to comprehensively restructure the existing lease accounting guidance for both lessees and lessors. While one might expect that many of the recently released standards match up, some of them do not. Specifically when it comes to leasing. We learn more from Mandi Polick in this excerpt from her article on AccountingWeb.com

New Standards from GAAP and IFRS 2One of the most significant differences between the two standards relates to the classification of a lease. Under US GAAP, a lessee must determine whether a lease is an operating or a finance lease. The lease expense is typically higher in the earlier years of the lease term. IFRS does not distinguish lease classifications for a lessee. 

Lessor accounting is also slightly different between the two bases of accounting. A lessor has three categories to determine classification under US GAAP: an operating, a direct financing, or a sales-type lease. A lessor only has two categories to classify a lease under IFRS: an operating or a finance lease. 

The two standards also differ in the definition of a lease. Under US GAAP, the definition of a lease is specific to identified property, plant, or equipment. Under IFRS, a lease can be any asset and the definition of a lease is not restricted to just property, plant, or equipment. IFRS 16 further notes that a lessee may, but is not required to, apply the leasing guidance to leases of intangible assets other than those under licensing arrangements.

IFRS also includes a threshold exemption for leases of low-value assets, such as tablets and personal computers, small items of office furniture, and telephones. This exemption allows a lessee not to recognize these leases on its balance sheet. The IASB noted low-value assets referred to assets less than $5,000 during its deliberations. No such exemption exists under US GAAP.

Another key difference between the two standards relates to the classification of a sublease. (GAAP) requires an initial lessee that subleases the underlying asset, therefore becoming a sublessor, to determine the classification of the sublease by referencing the leased asset in the original lease. IFRS 16 requires that the sublessor determine the sublease classification by referencing the right-of-use asset that arose from the original lease.

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More information about Bassets eDepreciation software can be found at Bassets.net or depre123.com. At Bassets register for our live webinar, download a free evaluation copy and get a personalized pricing estimate. At depre123 try out our Free Depreciation Calculator and check out our cloud based fixed assets application.

Import Spreadsheet Data to Start Calculating Depreciation in the Cloud

Depre123 is a cloud based application to manage fixed assets and generate a variety of depreciation reports on any desktop or mobile device. Get all of your depreciation answers based on just 3 key values (cost, date, asset class) and then utilize the open design to add all necessary fixed asset detail.

If you currently have your fixed asset data in a spreadsheet or another system that can export to a spreadsheet then you can easily import that data into Depre123. Here are the 5 basic steps:

1.Format your data in Excel:
The key to converting data is to format all of the fields to match your asset layout. Depre123 includes a utility to create a spreadsheet template by clicking on the “Download CSV Import Template” button. This is a dynamic process that will build the template based on your current asset configuration. You can then use this template to map each column of the spreadsheet to the corresponding field in Depre123. Below is a sample spreadsheet:

Import Spreadsheet Data to Start 3

2.Launch the data import wizard:
The import wizard allows you to replace any existing data on an initial data load. Going forward you can then append any new assets through the import processing.

Import Spreadsheet Data to Start 2

3.Select the file to process and set a few options:
Select the spreadsheet file from step 1 with all of your asset detail. Since this is an append you do not need to match on asset number so you can just click the Next button to advance to the mapping page.

4.Review field mapping:
The field mapping shows each field of the Dpere123 Asset object and the associated column in your import file. Before you proceed, you can verify everything is mapped correctly.

Import Spreadsheet Data to Start 1

5. Process the import:
The final screen displays that you are about to add new records to your assets. Click the Start import button to begin processing. Depre123 will then respond with a message indicating the import has started. Based on the number of records being processed, you can view the results of your import and see when the update is complete. At this point your new assets are available for further maintenance and reports.

The data import wizard makes it very easy to add asset records from another system or spreadsheet into Depre123. Once the assets are added then Depre123 will generate all of the depreciation calculations and fixed asset reports.

Questions? Comments? Let us know in the comments section below.

More information about Bassets eDepreciation software can be found at Bassets.net or depre123.com. At Bassets register for our live webinar, download a free evaluation copy and get a personalized pricing estimate. At depre123 try out our Free Depreciation Calculator and check out our cloud based fixed assets application.

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Accounting Considered Most Profitable Business in 2016

Accounting-related companies (accounting, tax preparation, bookkeeping and payroll service companies) are the most profitable, with net profit amounting to 18.3 percent of sales, on average, based on a financial-statement analysis for privately held companies for the 12 months ended June 30.  Legal services firms and real-estate leasing companies are tied for second and third in profitability, with average net profit margins of 17.4 percent.

Sageworks Most Profitable Industries 2016

“Some businesses tend to have healthier bottom lines by the very nature of the industries that they operate in,” said Sageworks analyst James Noe. Many of the most profitable industries sell services rather than products, he noted, so their operations don’t require raw materials or other up-front costs that would wind up in the middle of their income statements and eat into the bottom line. “They don’t sell or produce finished goods,” he said. “They don’t make the tractors to sell to farmers or they don’t buy groceries to sell to consumers. In other words, you don’t need plastic to provide an audit for a company; it’s just mostly human capital that’s being utilized, and that lends to a high margin generally.”

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Questions? Comments? Let us know in the comments section below.

More information about Bassets eDepreciation software can be found at Bassets.net or depre123.com. At Bassets register for our live webinar, download a free evaluation copy and get a personalized pricing estimate. At depre123 try out our Free Depreciation Calculator and check out our cloud based fixed assets application.

How Much is $100 Really Worth?

According to an article on the Tax Foundation site by Alan Cole, the true value of $100 differs from state to state. Find out where your state sits on the list:

This map shows the real value of $100 in each state. Prices for the same goods are often much cheaper in states like Missouri or Ohio than they are in states like New York or California. As a result, the same amount of cash can buy you comparatively more in a low-price state than in a high-price state.

The Bureau of Economic Analysis has been measuring this phenomenon for two years now; it recently published its data for prices in 2014. Using this data, we have adjusted the value of $100 to show how much it buys you in each state.

The states where $100 is worth the most are Mississippi ($115.34), Arkansas ($114.29), Alabama ($113.90), South Dakota ($113.64), and West Virginia ($112.49). In contrast, $100 is effectively worth the least in the District of Columbia ($84.67), Hawaii ($85.62), New York ($86.43), New Jersey ($87.34), and California ($88.97).

Regional price differences are strikingly large; real purchasing power is 36 percent greater in Mississippi than it is in the District of Columbia. In other words, by this measure, if you have $50,000 in after-tax income in Mississippi, you would have to have after-tax earnings of $68,000 in the District of Columbia just to afford the same overall standard of living.

 

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Questions? Comments? Let us know in the comments section below.

More information about Bassets eDepreciation software can be found at Bassets.net or depre123.com. At Bassets register for our live webinar, download a free evaluation copy and get a personalized pricing estimate. At depre123 try out our Free Depreciation Calculator and check out our cloud based fixed assets application.

What to do When Book Value Exceeds Market Value

According to Baldwin CPAs, “The market value of property and equipment often exceeds book value, especially for fixed assets that appreciate (rather than depreciate) in value or if your company uses accelerated depreciation methods. But the reverse sometimes occurs, too. When book value exceeds market value, a write-off may be required under U.S. Generally Accepted Accounting Principles.” Read on for further information.

What to do When Book Value ExceedsRecording impairment
Companies normally record fixed assets at historic cost and then depreciate them over their useful lives. But sometimes an asset’s book value (historic cost less accumulated depreciation) overstates its fair value. 

To the extent that book value exceeds fair value, the value of an asset is “impaired.” And you must report the impairment loss as part of your income from continuing operations. Impairment losses also reduce the carrying value of the impaired asset on your balance sheet.

Testing for impairment
Companies aren’t required to test property and equipment for impairment every accounting period. Rather, testing should occur on a consistent basis — say, every three to five years.

Unfortunately, there are many reasons management may delay or deny impairment. An impairment loss lowers earnings and the value of fixed assets and, therefore, raises a red flag to investors and lenders. 

Beyond impairment
Your balance sheet also may be “off” if the fixed asset ledger isn’t accurate. For example, you may no longer physically possess an asset that’s been stolen by an employee. Or an asset may be idle, damaged or obsolete.

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Questions? Comments? Let us know in the comments section below.

More information about Bassets eDepreciation software can be found at Bassets.net or depre123.com. At Bassets register for our live webinar, download a free evaluation copy and get a personalized pricing estimate. At depre123 try out our Free Depreciation Calculator and check out our cloud based fixed assets application.