1. Home
  2. General Accounting
  3. Cost of Sales when leasing your product

Cost of Sales when leasing your product

Let's say you're in a job costing type of environment where you lease particular structures or devices that you build to companies over so many years. Let's say that the initial lease is for 10 years. Do you take the total finished goods cost and move it to cost of sales over 10 years? Or should it be costed out not depending on the lease term but rather on the asset type (like depreciating it basically). It seems like there could be issues with consistency if once the 10 years is up, they resign the lease, and then cost of sales drops dramatically... thoughts?

Reply to
xyzer
Loading thread data ...

wrote

GAAP has some new lease accounting rules that you should look into. They were, in part, designed in consideration of the points you bring up.

Basically they require the leased item to be capitalized and depreciated over the greater of the anticipated lease life + renewals. So if it's a 10 year lease with a 10 year renewal, you might have to take the costs over 20 years. Oh, you also have to impute interest into the payments. And yes, there would be an off-setting lease liability too. Parts of the rules are very reasonable, other parts are comical.

Reply to
paulthomascpa

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.