Chapter 7

Question 1

Lessor and Lessee

Answer 1

Lessor transfer the right of use of asset to lessee and lessee give the consideration transferred to lessor

Question 2

How do we identify if a contract contains a lease?

Answer 2

Lessor:
* explicitly or implicitly in the contract (implicitly 是现在asset还没做好，lessee不知道哪一个asset; explicitly是specific asset了)
* supplier must not have substantive right to substitute the asset (substantive right 意思是lessor要换lessee的asset，不能是小成本 大利益 要不然这不是lease)

Lessee:
* obtain substantially all the economic benefits from use of asset
* right to direct the use of asset
* Dr ROU asset Cr lease liability

Question 3

Initial measurement: 1.Lease liability

Answer 3

Present value of future lease payment, discounted at the interest rate implicit in the lease (discount to PV)

If no interest rate, then follow the bank borrowing rate when borrowing money form bank to pay lease liability OR follow contract interest rate

If prepayment, then no lease liability, Dr ROU asset, Cr prepayment

Question 4

Initial measurement: 2. ROU asset

Answer 4

recognised at cost:
lease liability amount + initial direct cost - depreciation = CA

Question 5

Residual value guarantee

Answer 5

At the end of useful life, guarantee lessor that asset has residual value of xxx i.e $20,000

• If actual residual value left $30,000, then no need pay to lessor
• If actual residual value left $10,000, then pay lessor a more $10,000

Question 6

Reassessing the lease liability

Answer 6

If:
* lease term changes (3 yrs +/- 1 yr); OR
* option to purchase underlying asset changes (after leasing buy the asset)

Lease liability should be re-calculated using revised discount rate

Question 7

sales & leaseback

Answer 7

1. seller (leassee) sell asset to buyer (lessor)
2. then buyer (lessor) leaseback the asset to seller (leassee)

要确定是不是sales & leaseback, 要看risk and rewards transfer了吗，如果没有就不是sales

If transfer, in substance, is a sale:
Accounting treatment:
seller:
step 1: derecognise asset Dr cash, Cr asset, Cr/Dr P/L

step 2: recognise ROU asset Dr ROU asset, Cr lease liability, Dr/Cr P/L
ROU asset: (PV of lease rentals / FV of asset) x Old CA of asset [cal proportion of asset retained]
Lease liability: PV of lease rentals

If transfer, in substance, is not a sale:

• Proceed received = loan (financial liability)
• continue to recognise transferred asset
• Dr bank Cr financial liability
• Subsequently : interest expense, repay of loan

Sales < FV = prepayment of lease; Sales > FV = additional financing (借钱）

Question 8

Finance and operating lease

Answer 8

Finance lease: NCA & CA
Operating lease: NCL & CL