Essay Example on Contracts Containing Lease According to FASB

It is recommendable to understand the types of contracts that qualify as a lease under accounting standards. To understand the difference between the two, generally accepted standards must be used. The FASB accounting standards codification recognizes the application of the generally accepted accounting principles (GAAP) to non-governmental organizations. FASB assists stakeholders in solving implementation questions and issues when the organization is preparing to adopt new lease standards. The main aim of the development of these standards is to increase honesty and comparability among establishments by recognizing lease assets and liabilities on a balance sheet and revealing vital information about leasing dealings. A lease is considered as an agreement that expresses the rights to control the use of an identified asset, equipment, or property for a long period (Balashova et al., 2019). On the other hand, a contract is an agreement enforced by the law that concerns employment tenancy or sales. However, some contracts may contain a lease, which requires an accounting judgment to evaluate. The paper determines which agreement contains a lease in a deal between Acme Manufacturing Company (lessee) and Chicago Cubs (leaser) for a license suit at Wrigley Field where one scenario is a 5-year luxury suite license, and the other is a license for a 41-game plan for the next baseball season.

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The first scenario, a 5-year luxury suite license, can be described as a contract containing a lease. Several reasons can be used to elaborate the reasoning behind the concept. A deal is defined to include rent when there is an identified asset. The asset can be defined as directly within the contract, or indirectly, where a single asset is available to accomplish the terms of the agreement. In the case of this discussion, the asset is included in the luxury suite in the field. However, additional aspects are required to ascertain the claim that the 5-year license contains the lease. A contract can also be said to contain a lease when the lessee is given the right to control the use of the asset for the specified period. The rights of use may be directly through the contract where the lessee is given the right to determine where and how the asset should be used.

The agreement in Acme's case gives it the right to decide its deals with a third party, as indicated by the right to make a deal with the food and beverage concessionaire. Moreover, the rights of operating the suite provided are given, which enables full designation of a specific suite to Acme Corp. Furthermore, according to FASB, an asset containing a lease has an economic benefit to the lessee. ASC 842-10-15-17 shows that economic benefits may be realized form a commercial transaction with a third party (Kieso, Weygandt, & Warfield, 2019). In this case, the customer and the visitors are given food and beverages at a discounted price as per the concessionary, which is economically beneficial as it reduces expenditure for the customer, and also it involves the transaction flow of money from the payments done at the end of the month.

The second scenario, a 41-game plan for next season, where the company buys a suite license to watch 41 specific baseball games at Wrigley, is a contract that does not contain a lease. There are several significant explanations for the above statement. First, the asset is not given to the customer for a certain period, and licensing is offered for a specified number of games. This points out that the customer can only use the suite on a specific day, and not any other day. Thus, the customer has not been given the right full ownership of the asset (Balashova et al., 2019). The deal presented in the case of the study shows that in the 41-game plan licensing, the client is required to name the specific baseball games they intend to watch. Thus, the suite can only be used by the licenser during the days that they selected at the beginning of the deal. Therefore, the customer lacks the rights own the asset fully, which could give them the advantage of accessing the property any time. Thus, the deal is not a contract containing lease since the latter transfers ownership to the next party (Cevizovic & Mijoc, 2019).

Secondly, the 41-game plan contract denies full customer rights-of-use. Thus, the customer is not allowed to direct how the asset is used. This is because they are denied full ownership of the asset, which is given when the asset is being rented for a specified period. The speculations behind this are that the 41-game plan denies one the opportunity to make improvements in the suite licensed since they are only given a chance to pay for specific games and may be denied access at any other time. Therefore, this deal is a contract without a lease since it does not meet the standards outlined by FASB that defines a rental.

In conclusion, a contract containing lease is identified using specific GAAP standards developed by FASB. A lease must involve an asset, right-of-use, and economic benefits from the involvement. The 5-year suite licensing fulfills the criteria mentioned earlier; the customer is given the proper use of the asset at any time, and benefits for the discounted price of food and beverages from the concessionaire qualifying it as a lease. On the other hand, a contract that does not contain lease fails to fulfill the terms outlined in the FASB standards. The 41-game plan of buying suite license in the case provided is an example of a contract that does not contain lease as it does not give the customer full rights-of-use. Therefore, the ability to own, control the use, and benefit financially from a contract shows a contract containing deal.

References

Balashova, N., Vardanyan, S., Khoruzhy, L., Tokareva, E., & Goncharova, O. (2019, June). Conceptual Bases of the Using of the International Standards in Accounting and Internal Audit of Leasing Operations. In Volgograd State University International Scientific Conference," Competitive, Sustainable and Safe Development of the Regional Economy"(CSSDRE 2019). Paris: Atlantis Press. https://www.atlantis-press.com/proceedings/cssdre-19/125909745

Cevizovic, I., & Mijoc, I. (2019). The implication of the New Accounting Model for Leases. Ekonomski vjesnik/Econviews-Review of Contemporary Business, Entrepreneurship, and Economic Issues, 32(1), Pp.195-207. https://hrcak.srce.hr/ojs/index.php/ekonomski-vjesnik/article/view/8074

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting. Hoboken, N.J: John Wiley & Sons.