New accounting rule does not facilitate retailer loans

New accounting rule does not facilitate retailer loans

Companies that use the IFRS accounting rules will find it more difficult to get a loan in the future. Leased items will have to be written into the books as debt and no longer as a cost.

Debt will grow, solvency will drop

The International Accounting Standards Board has revealed the new rule, which means that all leasing contracts will be changed into debt. Up until now, companies were allowed to write off part of the contracts as a cost. Listed companies worldwide apparently have 3,000 billion dollars' worth of leasing contracts, with 85 % of the cost kept out of the accounting sheets.

 

Companies with plenty of store real estate, many of those retailers, will really feel the brunt of the new rule, as it will increase debt and lower solvency. The balance between debt and operating income will shift unfavourably, which will hamper their ability to get loans as banks often watch the debt level to consider if a loan is possible.

 

"In a fully transparent and rational world, these new leasing rules should not make any difference as it is purely an accounting measure. Economically, nothing changes", PwC partner Jay Tahtah told Financiële Telegraaf. "However, the world is not a rational place and that is why companies will have a different type of talk with banks."

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