RE:RE:RE:RE:RE:RE:RE:RE:Future Market Cap? Lessee Accounting
The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months, regardless of lease classification.
The Company elected the package of practical expedients, which allowed the carryforward of historical lease identification, lease classification and initial direct costs. In addition, the Company elected the practical expedient to combine lease and non-lease components for all its real estate leases into a single component. The Company did not elect the use of the hindsight practical expedient.
Additionally, the Company elected the practical expedient to not record leases with an initial term of twelve months or less on the consolidated balance sheets for all asset classes. As these leases are considered short-term in nature, they are expensed on a straight-line basis over the lease term, which commences on the date the Company has the right to control the property.
The following table summarizes the impact of the adoption of the new Topic 842 lease accounting guidance on the Company’s consolidated balance sheet as of January 1, 2019.
| | | | | | | | | | | | | |
| (in thousands) | | Balances at
December 31, 2018 | | | Adjustments from
Adoption of
Topic 842(1) | | | Balances at
January 1, 2019 | |
| Total Assets | | $ | 576,222 | | | | 74,425 | | | | 650,647 | |
| Total Liabilities | | | 290,970 | | | | 74,425 | | | | 365,395 | |
| | (1) | Adjustments includes the reclassification of deferred rent and deferred lease incentives into right-of-use assets and the reclassification of prepaid rent to operating lease liabilities as of January 1, 2019. |