The ASC 842 Impact to the Hospitality Industry whitepaper dives into the details and offers an example of what one might consider a typical situation may the best way to demonstrate the effect on the financial statements of the provisions in ASC 842 versus current GAAP accounting requirements.
The net effect of the new lease accounting standard will be a major increase in liabilities that must be recorded on the balance sheet of the lessees and a negative impact on debt to equity ratios. For many lessees that use debt financing vehicles, which contain restrictive financial covenants, any increase in liabilities could present a particular challenge and may well require a waiver discussion with the lender. Certainly, lease versus purchase analyses will become more important and could result in a decrease in leasing activity. But it is difficult to envision any significant decrease in leasing for a number of reasons. Many companies are cash strapped and leasing presents a particularly advantageous form of financing for those organizations that want to minimize upfront cash outlays. Read More..