CH7 Leases Flashcards
Double entry for initial recognition of a lease?
DR CASH (any cash payments received e.g. that unusual ‘incentive’ in the tuition exam
**DR ROUA (PVFLP + deposit/first instalment if paid in advance + PV of dismantling costs + fees)
**CR LEASE LIABILITY (PVFLP)
CR CASH (any cash payments - deposit/fist instalment + fees)
CR PROVISIONS (any dismantling costs)
Double entry for depreciating the leased asset?
Dr DEPN EXPENSE SPL
CR ACC DEP
Double entry for payments of lease? There are two parts…
DR LEASE LIABILITY (amount actually paid)
CR CASH
DR FIN COST (based on the interest rate implicit in the lease)
CR LEASE LIABILTY
How long is a ROUA depreciated over?
Shorter of lease term and useful life
What are the three steps to explain how a ROUA is dealt with in the fs?
- Initial recognition
- Subsequent measurement (depreciation)
- Payment table
What are the headings for the lease payment table - payments in ARREARS?
Along the top:
B/f - PVFLP (the lease liability)
+ interest at rate implicit in lease
- cash payments
C/f - what’s left to pay
Down: the years
20X1
20X2
20X3
Double entry for interest accrued on a lease?
DR FINANCE COSTS
CR LEASE LIABILITY
Which numbers do you take from the lease payment table to split the remainder into NC and C liabs?
Complete a row for another year. Take the figure to the right of next year’s payment (ie to the right of 10,000) and this is your NCL.
What are the headings for the lease payment table - payments in ADVANCE?
Along the top:
B/f - PVFLP (the lease liability - not inc the first payment)
Payment
Balance remaining
Interest accrued at X%
C/f - what’s left to pay (balance remaining + interest accrued)
Down: the years
20X1
20X2
20X3
What are the exemptions from the standard accounting for a lease?
What does it allow?
Is it a choice?
- Short term leases - 12 months or less with no purchase option
- Leases of low individual value assets e.g. laptops, mobiles, etc. Cars are never low value.
Allows these leases to be expensed on a straight line basis over the lease term.
Yes, it is a choice
What are sale and leaseback transactions?
Where a business sells an asset and then leases it back
What are the steps for sale and leaseback?
- Calculate the % of the original asset effectively retained as the ROUA (the PVFLP divided by the FV of the asset). This means that the balancing proportion of the asset has effectively been transferred to the buyer.
- Calculate the CV of the ROUA retained (being the original CV x % retained) AND the gain on disposal of the proportion transferred (being the balancing proportion above x the full gain on disposal).
Double entry for sale and leaseback?
In terms of sale and leaseback, what happens if the transfer is not a true sale?
How do you account for it?
It is a secured loan.
The asset remains on the SFP at CV
Liability is set up at amortised cost (b/f + interest - payment = c/f
Differences between IFRS and GAAP - leases?
- GAAP: classified as either finance or operating. Distinction depends on risks and rewards of ownership. IFRS: no distinction.
- IFRS: exemptions for short term leases and leases of low value assets (can do straight line expense). GAAP: no such exemptions.
