Ch.8 Leases- Lessee POV Flashcards
IFRS
16 POV= from lessee- the one who borrows the asset
ROU- right of use for the time that u lease it
only consider leases for 1+ yr
Initial measurement
ROU asset and a lease liability.
The ROU asset is recognized at cost, which includes:
• the initial measurement of the lease liability= PV of all the future payments.
• any lease payments made at or before the commencement date, less any lease incentives received
• any initial direct costs incurred by the lessee
• an estimate of costs to be incurred by the lessee at the termination of the lease to dismantle and remove the ROU asset or restore it to the condition required under the terms of the lease
initial measurement JE
dr ROU asset
cr lease liability
Bargain purchase option (BPO)
A purchase option at the end of the lease allows the lessee to purchase outright the leased asset at a “bargain” (a price below the expected fair market value of the asset) at the end of the lease term, making it relatively certain that the lessee would exercise the option. COULD BE BELOW GUARANTEED RESIDUAL VALUE
Guaranteed residual value
The lessee (or a third party) guarantees to the lessor that it can sell the asset for at least the residual amount.
Non-lease component costs
paid to the lessor as required by the lease arrangement
example, amounts paid for service or maintenance
usually excluded from the lease liability calculation unless the lessee elects as a practical expedient not to separate these costs.
Calculating the present value of the future lease payments
PV (RATE, NPER, PMT, (FV), TYPE).
rate= put a %. either implicit in the lease or use the lessee’s incremental borrowing rate
NPER= number of periods
PMT= lease payment. includes the fixed payments and variable payments based on an index or rate. It also includes non-lease component costs when the lessee has elected to include these.
FV=BPO or guaranteed residual value only, use BPO is both r there.If there is no BPO or guaranteed residual value, assume this amount is nil
TYPE = 1 indicates the beginning of the period, and 0 (or leaving it blank) indicates the end of the period.
Subsequent measurement of ROU asset – Cost model
ROU asset is measured at cost less accumulated depreciation and any accumulated impairment losses.
ROU asset is depreciated over the lesser of:
• the lease term
• the asset’s useful life
reasonable certainty that the lessee will obtain ownership by the end of the lease term (for example, if there is a BPO), then the asset must be depreciated over the useful life of the asset.
dr deprecation expense
cr accumulated depreciation - rou asset
also test for impairment
Subsequent measurement of the lease liability w JE
dr lease liab
cr cash
actual lease payments made are recorded as a reduction in the liability when paid to person u leased from
interest expense on the lease obligation per yr
payment is due at the beginning of the year= balance of the lease obligation at the end of the prior year, less the current-year lease payment, multiplied by the interest rate used to capitalize the lease
payments are due at the end of the year = balance of the lease obligation before the year-end payment was made (lease obligation at the end of the year before payment × interest rate to capitalize the lease)
dr interest expense
cr lease liab
Lease liability remeasurements
remeasured if there is a change in the future lease payments
change or modification in the future lease payments, these are discounted to calculate the revised lease liability
Any adjustments are recognized against the ROU asset and the lease liability.
Practical expedients
short-term lease of one year or less, or if the leased asset is of low value, the company may elect to expense lease payments on either a straight-line basis or a systematic basis over the term of the lease
leased asset is of low value only when all of the following apply:
• The asset is of low value when it is new.
• The lessee can benefit from the use of the asset on its own or together with readily available resources.
• The lease asset is not highly dependent on or highly integrated with other assets.
eg. tablets, personal computers, telephones, and small items of office equipment
dr rent expense
cr cash
Derecognition at end of lease
IFRS does not specifically address derecognition
Derecognition - lease terminates
and the ROU asset is returned to lessor.no residual guarantee, the lease liability should be nil because all payments have been made. The ROU asset should be fully depreciated and must be derecognized along with its related accumulated depreciation
dr accumulated depreciation - rou asset
cr rou asset
Derecognition - If there is a residual guarantee
guarantee must be paid. If the lease liability balance is not equal to the guarantee paid, then there will be a gain or loss on derecognition of the lease liability that will be immediately reported in the statement of comprehensive income ROU asset must also be derecognized dr accumulated depreciation cr ROU asset dr lease laib cr cash dr/cr loss/gain less derec (diff)
