Healthcare Finance Discussion Response M5

Prompt 1

Is leasing the best option in the healthcare industry? Leasing can include both medical equipment and property like buildings and vehicles. There are pros and cons to decision to lease but this article will focus on the advantages of leasing in the healthcare sector and discusses why it is a better option over purchasing.

I agree with the author when he claims that medical equipment is very expensive to purchase. Leasing provides a ready solution because there is no initial down payment required and the regular payments are lower than loan repayments. The lessee also benefits from warranty and does not have to contend with repairs for the first couple of years ( Fasb Accounting Standards Updates-Broad Issues, 2018) .

With the quick pace at which technology changes you find that medical equipment could become obsolete in few of years. When take the purchase route, you are forced to continue using outdated equipment or be forced to sell at a loss.

Prompt 2

The Financial Accounting Standards Board which is tasked with setting the general rules of accounting has set new standards for lease accounting. We will discuss how these changes affect the healthcare system in particular.

The new guidelines require that unlike before new assets and liabilities for all the rights and obligations created under leases should now be recognized in the balance sheet. Another requirement was for disclosures which would give consumers of financial statements a better understanding of the movement of cash flows emanating from leases ( Fasb Accounting Standards Updates-Broad Issues, 2018) .

As the author points out, the new guidelines cause higher debt ratio reporting, this results in shorter term leases and eventually makes a case for purchasing as a way to reduce capitalized reporting. However, the changes also have advantages as they create a better understanding of financial statements and provide more information like lessor’s exposure to credit and asset risk. Ultimately, the changes give a much more honest picture of the lessee’s rights and duties under leases.

References

Fasb Accounting Standards Updates-Broad Issues. (2018).  Annual Update for Accountants and Auditors . doi:10.1002/9781119511427.ch1