Accountant Lease vs Buy Calculator That Complies with Fasb
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Reviewed by Calculator Editorial Team
When accountants need to decide between leasing or purchasing equipment, they must comply with FAS 16 (Financial Accounting Standards Board) guidelines. This calculator helps you compare the two options using FAS 16-compliant calculations to determine which is more beneficial for your business.
Introduction
Accountants frequently face the decision of whether to lease or buy equipment. The choice between leasing and purchasing can significantly impact a company's financial statements and tax obligations. FAS 16 provides specific guidelines for how to account for leases, which accountants must follow to ensure compliance.
This calculator simplifies the comparison process by providing FAS 16-compliant calculations. By inputting key financial details, you can quickly determine which option is more advantageous for your business.
How to Use This Calculator
Using this calculator is straightforward. Follow these steps:
- Enter the initial cost of the asset you're considering.
- Input the annual maintenance cost.
- Specify the lease term in years.
- Enter the annual lease payment.
- Click "Calculate" to see the comparison results.
The calculator will display the total cost of each option, allowing you to make an informed decision.
FAS 16 Compliance
FAS 16 outlines the accounting treatment for leases. Under FAS 16, leases are classified as either operating leases or capital leases. Operating leases are expensed immediately, while capital leases are capitalized and amortized over the lease term.
This calculator uses FAS 16 guidelines to ensure accurate and compliant calculations. It helps accountants determine the appropriate classification and accounting treatment for leases.
Lease vs Buy Comparison Table
| Factor | Lease | Buy |
|---|---|---|
| Initial Outlay | Lower (no large upfront payment) | Higher (requires full purchase price) |
| Tax Benefits | Potential deductions for lease payments | Depreciation deductions |
| Ownership | No ownership (lease terminates) | Full ownership (asset remains) |
| Risk | Lower (less responsibility) | Higher (maintenance and depreciation) |
| Flexibility | Higher (can upgrade or downgrade) | Lower (locked into asset) |
Worked Example
Let's consider a scenario where an accountant needs to decide between leasing or purchasing a computer system:
- Initial cost of purchase: $5,000
- Annual maintenance cost: $500
- Lease term: 3 years
- Annual lease payment: $2,000
Using the calculator, the total cost for leasing would be $6,000, while the total cost for purchasing would be $6,500. In this case, leasing is the more economical option.
Frequently Asked Questions
- What is FAS 16?
- FAS 16 is a set of accounting standards issued by the Financial Accounting Standards Board that govern the accounting treatment of leases.
- How does FAS 16 affect lease vs buy decisions?
- FAS 16 requires specific accounting treatments for leases, which can impact financial statements and tax obligations. Accountants must comply with these standards when making lease vs buy decisions.
- Can I use this calculator for any type of asset?
- Yes, this calculator can be used for any type of asset where you're considering leasing or purchasing.
- Is this calculator compliant with FAS 16?
- Yes, this calculator uses FAS 16-compliant calculations to ensure accurate and compliant results.
- How often should I review my lease vs buy decisions?
- It's recommended to review your lease vs buy decisions annually or whenever significant changes occur in your business or financial situation.