Ch. 8 - Leases Flashcards
Leases - IFRS Section
16
Lessee - Initial Measurement (two balance sheet accounts)
- Right-of-Use asset
2. Lease liability
Lessee - Initial Measurement - Right of Use Asset includes:
- initial measurement of lease liability
- lease payments made on/before start date, less incentives
- initial direct costs incurred by lessee
4 estimate of costs to dismantle/terminate asset
Lessee - Initial Measurement - Initial measurement of lease liability
- All fixed payments
- variable payments based on an index or rate
- Bargain purchase option, if expected to be used
- guarantee residual value
- termination penalties
Lessee - Calculating the PV of future lease payments
- Rate
- Periods
- Payments
- Future value
- Type
- The rate implicit to the lease if known, or incremental borrowing rate
- periods of the lease
- fixed and variable payments
- ending value, include BPO or guaranteed residual. If no BPO or residual, is $0
- payments at the beginning or end of the period
Lessee - Subsequent Measurement of ROU Asset - Options to measure
- cost model
- revaluation model
- fair value model (if ROU assets qualifies as investment property)
Lessee - Subsequent Measurement - Cost Model for ROU Asset
measured at cost less accumulated amortization
Lessee - Subsequent Measurement - ROU Depreciation Timing:
lesser of:
- the lease term, and
- the assets useful life
Lessee - Subsequent Measurement of Lease Liability
payments are recorded as a reduction of the liability
Lessee - Short Lease or Low Value Lease
- Treatment
- what is considered low value
- Can be expensed as incurred
- Low value when all apply:
1. low value when new
2. lessee can benefit from asset on its own or with other resources
3. the asset is not dependent on other assets
Lessee - Disclosures
- Depreciation and interest expense on ROU assets
- Expense related to short-term or low value leases
- Additions and net carrying amounts of ROU assets
- gains/losses on sale leasebacks
Lessor - classification options
- operating
2. finance
Lessor - finance lease criteria (any of them)
- title transfers at end of lease term
- a BPO exists and is expected to be exercised
- term provides substantially all economic benefits to lessee
- PV of payments are substantially all of FV of the asset
- The asset is specialized in nature such that only the lessee can use it without modification
Lessor - Recording a Finance Lease
- Record a lease receivable and sales revenue
2. record cost of goods sold and removal of inventory
Lessor - Recording an Operating Lease
- record lease revenue as payments are collected
Sale and Leaseback - A sale has not taken place if:
- the seller-lessee has an obligation to repurchase the asset
- the seller-lessee has a right/option to repurchase the asset
- the seller-lessee has an obligation to repurchase the asset at the buyer-lessors request
Sale and Leaseback - If a sale has not occurred, it is treated as:
a financing agreement
Sale and Leaseback (Lessee) - If a sale has occurred, it is recorded as:
a regular sale (gain/loss on disposal) and a lease asset/liability is recorded
ASPE / Lessee - Criteria for capital or operating (one of them)
- Reasonable assurance that ownership will transfer to lessee (BPO)
- The term provides substantially all economic benefits to lessee (75% or more)
- The PV of lease payments is substantially all of FV of asset (90% or more)
ASPE / Lessee - Capital Lease Asset
- Rate
- Periods
- Payments
- FV
- Type
- The rate implicit to the lease if known, or incremental borrowing rate
- periods of the lease (payments made)
- fixed and variable payments
- ending value, include BPO or guaranteed residual. If no BPO or residual, is $0
- payments at the beginning or end of the period
ASPE / Lessee - Lease Liability (differences from IFRS)
- non-lease component costs are excluded
- discount rate is lesser of implicit rate and borrowing rate
- leased asset cannot be recognized at an amount higher than its fair value
ASPE / Lessor - Capital Lease Criteria
- Any of:
a. Reasonable assurance that ownership will transfer to lessee (BPO)
b. The term provides substantially all economic benefits to lessee (75% or more)
c. The PV of lease payments is substantially all of FV of asset (90% or more); and - credit risk is normal compared to similar receivables; and
- costs under the lease can be reasonably estimated
