Week 11 discussion responses

Please write a response to each discussion.

 Mazanec

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“During 2016, the Financial Accounting Standards Board released Accounting Standard Update (ASU) 2016-02 which revised accounting for lease agreements. For Lessee’s under ASU 2016-02, all leases will be categorized as either a financing lease or an operating lease. While theaccounting for financing leases will be very similar to current accounting treatment for “capital” leases, the new accounting treatment for operating leases changes significantly. Under ASU 2016-02, accounting for operating leases will require the recording of a “right to use” asset and a corresponding “lease liability” on the entity’s balance sheet measured at the present value of the lease’s underlying lease payments. While the effective date of ASU 2016-02 (fiscal periods beginning on or after December 15, 2019) is several years away, we recommend Hospital management begin their evaluation of all lease agreements now in order to be ready for this significant, upcoming change” (Personal Communication, 2016).

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Heard

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In the examples provided in chapter 21 evaluating the $50,000 cost of a piece of equipment, the for-profit organization would realize a $1,489 net advantage by leasing, and the not-for-profit organization would realize a $676 net advantage by owning (Baker & Baker, 2014). Both options have advantages and disadvantages based on the business situation. If my organization was only planning to keep it for the short term, I may find that leasing is a better alternative than buying it and trying to resell it when you no longer need it. I’d want to find out if there's a buyout option at the end of the lease if I decide I want to keep the asset after the original lease is over.

One important task I’d want to undertake is to analyze the cost/benefit of new vs. used equipment, especially if an organization was just starting out. Investing in a lot of new equipment when just getting started can place an undue burden on cash flow and finances. It might be better to start small and increase capital acquisitions as the organization increase profits and can support the growth.

PIck

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I think there is no right or wrong answer and it depends on the organization's financials as well as the type of equipment. I have experience with buying, leasing and leasing to purchase. Leasing to purchase or financial lease is a contract to purchase the item (Baker & Baker, 2014). Working in radiology we deal with very high dollar items to smaller items such as computers. The university leases all of the computers and that way we get new computers every three years and do not have to worry about maintenance or computers being out of date. Our higher dollar items such as CT and MRI are all bought, but were used machines. After looking at the financials, it was beneficial to purchase used equipment than lease. At a previous organization we leased the MRI. It was a 10 year lease. This was not a smart option as the CT machine broke down and needed to be replaced the same time we needed to replace the MRI unit. Granted we could not know this would happen. With the MRI lease we could have bought the MRI at the end of the lease, but it was not cost effective for what we were getting. A wall had to be torn out in order for the old MRI unit to be replaced.

 For the examples in the book, they used a $50,000 piece of equipment. This is fairly cheap as compared to my examples. I believe both companies should lease the equipment to save capital. Southside clinic has a small net advantage to owning, but I think lease is the better option (Baker & Baker, 2014). Knowing what the equipment is and how it would be used would also be beneficial to make a final decision.

Princek

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Although the text did not provide many differences between the Leasing and buying example, I would carefully evaluate the benefits of both options with my current business plan. My choice would be based on my business plan and the financial stability of my business.  If I was just starting my business, I would lease equipment and the property.  This would decrease maintenance costs and a short-term lease would allow the option of upgrading the property or equipment as revenue increases. If my organization was established and I had a stable flow of revenue coming in, I would be likely set in my business plan and looking for a more long-term investment. At which point I would buy the property and equipment.

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