Chapter 15 Flashcards
Finance leases
Lessee has, in substance, purchased the lease asset
Sales-type lease
lessor transfers control of lease asset to lessee, with or without a selling profit on the sale of the asset
Operating lease
Fundamental rights and responsibilities of ownership are retained by the lessor and the lessee merely is using the asset temporarily
Annual Amortization Formula
Present value of lease payment / Lease terms
lessee
user of a leased asset
lessor
owner of a leased asset.
purchase option
a provision of some lease contracts that gives the lessee the option of purchasing the leased property during, or at the end of, the lease term at a specified price.
residual value
or salvage value, the amount the company expects to receive for the asset at the end of its service life less any anticipated disposal costs.
If the lease payments have a total value that represents “substantially all” of the asset’s fair value, it is logical to identify the contract as Blank______.
equivalent to a sale
The amortization table for an operating lease allows the lessee to allocate each lease payment to Blank______ and Blank______.
interest expense; reduction of the lease liability
Amortization of the right-of-use asset for an operating lease F
is calculated as the lease payment minus interest expense.
The incremental borrowing rate is
the rate the lessee would pay a bank to borrow funds.
The short-cut method of accounting for leases
may be used if the lease has a lease term (including any options to renew or extend) of twelve months or less.
Value of asset at end of first year formula
Value of asset + interest charged - lease payment
PV of lease
Lease amount * Pv annuity
Profit on lease
PV of the lease - cost of the equipment
residual value
or salvage value, the amount the company expects to receive for the asset at the end of its service life less any anticipated disposal costs.
under GAAP
a lessee only remeasures the variable lease payments that depend on an index or rate when the lessee remeasures the ROU asset and lease liability for other reasons.
under IFRS
a lessee remeasures the variable lease payments that depend on an index or rate whenever there is a change in the cash flows resulting from a change in that index or rate
lessor’s gross investment in the lease
total of periodic rental payments plus any residual value.
