Introduction:
The Accounting for Leases case study by Darroch A. Robertson discusses the changes in accounting standards related to leases and their implications for companies. The case focuses on the lease agreement between Air Canada and Bombardier Inc. The purpose of this essay is to analyze the case and provide recommendations to address the issues facing the companies.
Case Issue:
The issue in the case is the impact of the new lease accounting standards on the financial statements of Air Canada and Bombardier Inc. The new standards require companies to report lease obligations as liabilities on their balance sheets, which can have significant implications for their financial statements. The case also highlights the challenges faced by companies in transitioning to the new standards.
Case Analysis:
The case discusses the lease agreement between Air Canada and Bombardier Inc. Air Canada has leased 45 aircraft from Bombardier, and the lease agreement is set to expire in 2025. The new lease accounting standards require Air Canada to report the lease obligations as liabilities on its balance sheet. This will increase Air Canada’s debt-to-equity ratio, which could negatively impact the company’s credit rating and its ability to obtain financing.
Bombardier Inc. is also affected by the new lease accounting standards. The company is required to report the lease payments as revenue, which will increase its reported revenue. However, the company will also be required to report the lease obligations as liabilities on its balance sheet, which could negatively impact its financial statements.
The transition to the new lease accounting standards is also a challenge for both companies. The new standards require companies to identify and evaluate all lease agreements and report them as assets and liabilities on their balance sheets. This requires significant effort and resources, and can be time-consuming and costly.
Conclusion:
The new lease accounting standards have significant implications for companies that lease assets. The standards require companies to report lease obligations as liabilities on their balance sheets, which can have significant implications for their financial statements. Air Canada and Bombardier Inc. are both affected by the new standards, and transitioning to the new standards is a significant challenge.
Read Case Study Analysis Assignment and Homework Help Solution
- Haliburton Company: Accounting for Cost Overruns and Recoveries
- Differences between Financial Accounting and Tax for Valuation in M&A
- Adenosine Therapeutics LLC: Accounting for a Different Compensation Method
- Shifting Finance from Controlling to Improving
- Micro-Strategy: Accounting for Crypto-currency Case Study Solutions
- Aquasure: Project Finance – Victorian Desalination Plant Case Study Solutions
- Fair Value Accounting Controversy at Noble Group
- Aztek Chocolate Studio: Accounting System Software Case Study Solutions
- Housing Finance Agency Case Study Solutions
- Work Pants Finance: The Miners Go to B-School Case Study Solutions
Recommendations:
To address the issues facing Air Canada and Bombardier Inc., several recommendations can be made:
- The companies should work together to evaluate the impact of the new lease accounting standards on their financial statements. This will enable the companies to identify the potential risks and opportunities associated with the new standards.
- The companies should develop a plan to transition to the new standards. This plan should include a timeline, budget, and resources required to implement the new standards. The companies should also consider the impact of the new standards on their stakeholders and communicate the changes effectively.
- The companies should assess the impact of the new standards on their debt covenants and credit ratings. This will enable the companies to identify any potential issues and take appropriate actions to address them.
- The companies should consider alternative financing options, such as sale-leaseback transactions, which could help them to manage their lease obligations more effectively.
In conclusion, the new lease accounting standards have significant implications for companies that lease assets. Air Canada and Bombardier Inc. are both affected by the new standards, and transitioning to the new standards is a significant challenge. However, by working together, developing a plan to transition to the new standards, assessing the impact on their debt covenants and credit ratings, and considering alternative financing options, the companies can effectively manage their lease obligations and mitigate the risks associated with the new standards.
Looking for similar case solution, You can submit our form by clicking submit button in menu or WhatsApp us at +16469488918 to book your order. Visits case study analysis help to see more case solutions.