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
2
Q
Finance lease criteria
A
- Specialized nature - item is a specialized nature that at the end of the lease, the lessor doesn’t want it back
- Purchase option
- Transfer title
- Major part - 75% or more of life
- 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
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)
4
Q
Lease under IFRS - what’s the differences?
A
- All leases are considered finance lease
- 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
- 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