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Proposed Accounting Rule Makes It Better to Buy Than Rent
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The Financial Accounting Standards Board (FASB) is considering a new proposal (#13) Accounting for Leases, If it is approved, rent payments would go from being recognized as an operating expense, which doesn't appear on a corporations balance sheet, to a capital expense, which does appear. This would alter the way that companies show rent costs on their balance sheets, thereby cutting into profits.
It would cause corporations, in the name of financial transparency, to carry a reserve equal to the amount of rent over the entire lease term. (So much for 10 and 20 year leases!) This amount would show as a balance sheet liability. That makes it just as easy and smart to buy, particular now that prices are at a 10 low. If a company wants to control a particular space for 10 to 20 years, it makes more sense to purchase.
This allows the company to depreciate the building over 39 years instead of just over the length of the lease. The announcement came out to inform larger companies, but smaller companies can benefit as well. Since they can't or do not want to buy a large building, an office condo is the perfect alternative, and we can help you with that!! |
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Posted By - Jim Akers - 03/04/2010
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