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FAR > 12. Leases > Flashcards

12. Leases Flashcards

1
Q

Leases: Definition

A
  1. Substantially all economic benefits
  2. identified asset
  3. Right to direct its use
    (Even with restrictions)
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2
Q

Leases: When would a customer not have the right to use an identified asset?

A

Possible & economically beneficial to provide alternative

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3
Q

Leases: What might an agreement be if it isn’t a lease?

A

Contract for a service

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4
Q

Leases: At start of lease: Treatment: Lease liability

A

Present value of payments not made:

1. Fixed payments

  1. Residual value guarantees
  2. Expected purchase options
  3. Expected termination penalties
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5
Q

Leases: At start of lease: Treatment: ROU asset

A

At cost

1. Initial value

  1. Pre-commencement payments
    (E.g. deposit, advance payment)
  2. Initial direct costs
  3. Estimated removal costs per conditions
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6
Q

Leases: Journal to record a ROU asset

A

DR ROU Asset

CR Lease liability
(PV of payments not yet made)

(CR Cash/Payables)
(initial costs etc.)

(CR Provision)
(Dismantlement etc.)

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7
Q

Leases: Lease term length calculation

A

1. Non-cancellable periods

  1. Expected extension/reduction
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8
Q

Leases: Lease payments: How are they discounted?

A

Interest rate implicit in lease

If unavailable:
Lesee’s incremental borrowing rate

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9
Q

Leases: Calculating lease liability: In arrears: Table (horizontal)

A
  1. B/f
  2. Interest accrued
    (Finance costs)
  3. Payment
  4. C/f
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10
Q

Leases: Calculating lease liability: In advance: Table (horizontal)

A
  1. B/f
  2. Payment
  3. Balance
  4. Interest accrued
    (Finance costs)
  5. C/f
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11
Q

Leases: Calculating lease liability: In arrears: Where to put initial lease liability?

A

Year one B/f

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12
Q

Leases: Calculating lease liability: In arrears: Where is TOTAL liability?

A

Year one C/f

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13
Q

Leases: Calculating lease liability: In arrears: Where is NON-CURRENT liability?

A

Year 2 c/f

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14
Q

Leases: Calculating lease liability: In advance: Where to put the initial lease liability?

A

Year 1 balance
(First 2 are empty)

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15
Q

Leases: Calculating lease liability: In advance: Where is TOTAL liability?

A

Year 1 C/F

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16
Q

Leases: Calculating lease liability: In advance: Where is non-current liability?

A

Year 2 Balance
(Last 2 are empty)

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17
Q

Leases: Calculating lease liability: Rule for finding NCL for both arrears and advance?

A

Balance to the right of payment (in 2nd year)

18
Q

Leases: Calculating lease liability: What if payments not annual?

A

Each line is a period (e.g. quarter)

19
Q

Leases: Deposit: DE

A

DR ROU Asset

CR Cash

20
Q

Leases: Incentives (received before/on commencement) treatment?

A

Deducted to arrive at initial asset figure

21
Q

Leases: How is the asset depreciated?: Ownership doesn’t transfer at end of lease

A

Over SHORTER of:

  1. Lease term
  2. Useful life
22
Q

Leases: How is the asset depreciated?: Ownership does transfer at end of lease

A

Over useful life

23
Q

Leases: is a ROU asset subject to an impair review?

A

Yes

24
Q

Leases: IF lease part of a revalued class of asset: Which value is relevant?

A

FV of ROU
(Not underlying asset’s FV)

25
Q

Leases: Short-term (less than 12m) leases: Treatment

A

CHOICE for simplified treatment:

Expense lease payments on straight-line basis

26
Q

Leases: Where do you present the ROU?

A

Either separately or as part of PPE

27
Q

Leases: Disclosures:

A
  1. Depn’ charge for ROUs
  2. Finance cost on LLs
  3. (Short-term low value lease expenses)
  4. Total lease cash outflow
  5. ROU additions
  6. ROU carrying amount by class (if not on face)
28
Q

Leases: Low value lease: Treatment
E.g. computers, small office furniture, phones
(No specific value given)

A

Same as short leases

29
Q

Leases: Sale and leaseback: How to decide if a sale is made?

A

Generally a sale

Exception: Lessee has substantive right to repurchase asset

30
Q

Leases: Sale and leaseback: No sale: Treatment

A
  1. Continue to recognize asset
  2. Recognize financial liab for proceeds received
31
Q

Leases: Sale and leaseback: No sale: DE

A

DR Cash
CR Loan (secured)

32
Q

Leases: Sale and leaseback: Yes sale: Treatment

A
  1. Derecongise asset
  2. Reconise ROU asset
  3. Reconise a lease liability
  4. Note profit/loss on disposal
33
Q

Leases: Sale and leaseback: Yes sale: Treatment: What to recongise the new ROU asset as?

A

The proportion of previous carrying amount that relates to rights retained

34
Q

Leases: Sale and leaseback: Yes sale: DEs:
(proceeds at FV - will always be for exam)

A

DR cash
CR PPE

DR ROU asset
CR Lease liability

DR/CR Loss/Profit on disposal
(*Balancing figure)

35
Q

Leases: Sale and leaseback: Yes sale: DEs: What is the cash amount?

A

Proceeds

36
Q

Leases: Sale and leaseback: Yes sale: DEs: What is the PPE amount?

A

Carrying amount

37
Q

Leases: Sale and leaseback: Yes sale: DEs: What is the ROU amount?

A

Carrying amount

X

(Lease Liability
/
Fair value = Proceeds)

38
Q

Leases: Sale and leaseback: Yes sale: DEs: What is the Lease liability amount?

A

PV of lease payments

39
Q

Leases: Sale and leaseback: Yes sale: DEs: What is the profit/loss amount?

A

BALANCING FIGURE

40
Q

Leases: UK GAAP differences: Operating lease DE

A

DR Fixed asset (depreciate)
CR Finance lease liability (Same as with ROU)

41
Q

Leases: UK GAAP differences: Operating lease amount

A

Lower of FV (cash) and PV of minimum lease payments

FAR (19 decks)

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