Accounting for Leases Flashcards

1
Q

What are type of leases for lessor and lessee?

A

Lessor - Operating and Nonoperating
Nonoperating has two types:
1) Sales-type with selling profit and without selling profit
2) Direct financing (rare)

Lessee - Operating and Finance

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2
Q

Finance lease criteria

A
  1. Specialized nature - item is a specialized nature that at the end of the lease, the lessor doesn’t want it back
  2. Purchase option
  3. Transfer title
  4. Major part - 75% or more of life
  5. Substantially all - 90% or more of FMV
    * *for #4 and #5, if you are at last 25% of leased life, then you can’t use these to test
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3
Q

Who’s gonna depreciate/amortize the lease at finance lease? and how do you calculate to amortize?

A

Lessee, not lessor
Use useful life / legal life
@ end of the lease => purchase it, then use useful life to amortize
if not, shorter of useful or legal life (lease term)

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4
Q

Lease under IFRS - what’s the differences?

A
  1. All leases are considered finance lease
  2. Any lease with purchase option cannot be classified as short-term lease, but “low-value lease” $5000 or less could be considered short-term lease even with purchase option
  3. IFRS requires re-measurement of lease liability (or lease receivable) if the index or rate tied to variable lease payment changes, resulting in a change in cash flow
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