Chapter 5 Flashcards
What is a lease?
Contract that conveys the right to use an asset for a period of time in exchange for consideration
What is a lessor?
Entity that provides the right to use asset
What is a finance lease?
Lease that transfers all risk and rewards of ownership
What is a lessee?
Entity that obtains the right to use asset
What is the accounting treatment of operating lease?
Lease receipts shown as incomes on a straight line basis over the term of lease
Any differences between amount charged and paid will be accrued income or deferred income
What is the subsequent treatment of finance lease?
Carrying amount is:
Increased by finance income earned
Decreased by cash receipts
What is finance lease receivable equal to?
Net investment of the lease
What is the lessors treatment of finance lease?
Derecognise leased asset
Recording a receivable for future receipts from the lease
What is net investment of lease calculated as?
PV of all unreceived:
Fixed rental payments
Variable rental payments
Residual value guarantees
Unguaranteed residual value
Termination penalties
