Chapter 12 - Leases Flashcards
What is a lease?
contract that conveys the rights to use an underlying asset for a period of time in exchange for consideration
What is the lessor?
the entity that provides the right to use an underlying asset in exchange for consideration
What payments would be included when recognising a lease liability?
- fixed payments
- amounts expected to be paid under residual value guarantees
- options to purchase that are reasonably certain to be exercised
- Termination penalties if lease term reflects expectation that they will be incurred
What is a right of use asset?
represents a lessee’s right to use an underlying asset for the lease term
What is the lessee?
entity that obtains the right to use an underlying asset in exchange for consideration
What does a lease term comprise of?
- non-cancellable periods
- periods covered by an option to extend the lease if reasonably certain to be exercised
- periods covered by an option to terminate the lease if these are reasonable certain not to be excerised
How do we recognise a lease liability?
- at present value of payments not yet made that will probably be made.
How is the table laid out for lease payments made in arrears?
Balance b/f. Interest. paid. balance c/f
How do we recognise right-of-use asset?
Recognise at cost, which equals:
- initial value of lease liability
- payments made at or before commencement
Together with any acquisition costs normally capitalised, such as:
- initial direct costs
- estimated costs of asset removal or dismantling as per lease conditions
What is the double entry for cash payments that reduce the lease liability?
Dr Lease Liability
Cr Cash
How is the subsequent measurement of the right-of-use asset measured?
unless another model is chosen then the cost model. cost - acc depn and impairement losses
The increase of the liability by the interest charge is recorded how?
Dr Finance Costs (SPL)
Cr Lease Liability
How is the table laid out for payments made in advance?
Balance b/f Paid. Net. Interest. Balance c/f
The asset is depreciated if what?
- if ownership transfers to the leassee at the end of the lease, over the remaining useful life of the asset
- if ownership does not transfer to the leassee at the end of the lease, over shorter of the lease term and useful life of the asset
If lease payments are made in advance when are they made?
start of the year, so must be deducted before calculating interest