We are pleased to announce that our Hawaii office will be relocating to the 10th floor of the Pacific Guardian Tower effective December 1, 2024. Our new office is conveniently located at the corner of Kapiolani Blvd and Keeaumoku Street, between Ala Moana Shopping Center and Walmart. We are also excited to announce that a new Audit Department has been added to our Honolulu team, further expanding our ability to deliver specialized services. We look forward to welcoming you to our new office and continuing to serve you with the highest level of professionalism and dedication. New Address: Pacific Guardian Tower,…
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Starting January 1, 2024, a significant number of businesses will be required to comply with the Corporate Transparency Act (“CTA). The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA requires the disclosure of the beneficial ownership information (otherwise known as “BOI”) of certain entities from people who own or control a company. It is anticipated that 32.6 million businesses will be required to comply with this reporting requirement. The intent of the BOI reporting requirement is to help US law enforcement combat money laundering, the financing of terrorism and other…
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In this article, we will look at an example based on the previous explanations. Suppose that there is an operating lease lessee as follows: 【Example】 A 5-year real estate lease is determined to be an operating lease. The commencement date is 1/1/20X1. The rent is payable annually: $5,000 on the commencement day, followed by the next year's rent by the end of the previous year, $10,000 in the second year, $20,000 in the third year, $30,000 in the fourth year, and $40,000 in the fifth year. The rent includes CAM (common area maintenance), and the ratio of rent to CAM…
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In this article, we will look at initial direct cost from the perspective of the lessee. (Note that initial direct cost also occurs from the perspective of the lessor, but we will not discuss that here.) ASC 842 defines initial direct cost as follows: Incremental costs of a lease that would not have been incurred if the lease had not been obtained (842-20-20). It is somewhat difficult to understand that at this point, but ASC 842 gives the following example. Applicable (ASC 842-10-30-9) Commission (to real estate brokers, etc.) Eviction payments to existing tenants On the other hand, those…
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In this article, we will look at the non-lease component of a lease contract from the lessee's perspective. Up to now, we have been discussing a lease contract on the assumption that it is only a contract for the borrowing and lending of goods. In fact, in addition to the components that stipulate the rights and obligations to borrow and lend things, there are many other matters that are agreed between the lessor and lessee, such as maintenance of the leased property, management and maintenance of common areas of real estate, and tax burdens. In the new lease accounting, these…
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In this article, we will look at the treatment of amounts paid with respect to leases from the lessee's perspective. We will determine how these payments are treated in ASC 842 and determine the amount of lease payments. Lease payments The lease payment is an important concept in ASC 842, and the present value of the lease payments is used to determine the classification of the lease (financial lease or operating lease) (See Part 1.), and is the basis for calculating the amount of lease liabilities and ROU assets. The composition of lease payments is discussed below. In a nutshell,…
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In this article, we will explain the discount rate used to calculate the lease obligation. A lease liability is calculated by discounting the total amount of payments for the entire lease term (Lease Payment - to be explained in the next article) to the present value (Present Value - PV), and it is necessary to determine what the discount rate to use. Type of discount rate The new leasing standard ASC 842 presents the following two discount rates Implicit rate Incremental borrowing rate Although simplified, each can be explained as follows. Implicit rate: PV of lease payments + PV of…
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In this article, we will look at the transitional provisions when the new lease standard is applied in 2022. Since this is a change in accounting standards, retrospective application is the principle. However, since retrospective application is complicated, there are two transition methods as follows: ASC 842-10-65-1 Retrospectively to each prior reporting period presented in the financial statements with the cumulative effect of initially applying the pending content that links to this paragraph recognized at the beginning of the earliest comparative period presented. Under this transition method, the application date shall be the later of the beginning of the earliest…
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The major change in the new lease standard (ASC 842) is the treatment of operating leases on the lessee side. The new lease standard (ASC 842) has introduced a new concept of "Right of Use Asset" (ROU asset), which is defined as an asset that represents a lessee's right to use an underlying asset for the lease term and is used for both finance leases and operating leases. We will touch on the theoretical aspects later, but for now, let's look at what it means to on-balance an operating lease using an example. The lease is for 5 years, and…
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The effective date of the new lease standard (ASC 842) is approaching. For calendar year private companies, it is effective at the end of 2022, but it should be applied at the beginning of the fiscal year when you prepare financial statements at the end of the fiscal year. We will be covering the leasing issues for the next several articles. Summary First, the lease is described as a contract that conveys the right to control the use of an identified asset, using the control concept familiar from the new revenue recognition standard. Until now, it has been described as…
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