Concepts CH 13 Flashcards
Capital Lease
Any of the Following: Provides for transfer of ownership Lease contains a BPO Lease Term is > 75% of Econ Useful Life PV of min lease payments is at least 90% of FV of property at inception
Components of min lease payments
Minimum Rental payments (less executory costs)
BPO (Purch at price < FV)
Guaranteed Residual Value
Non-Renewal Penatly
Capital Lease Liability
PV of min lease payment Discount Rate (lessor of Lessor's implict rate or lessee's incremental rate)
Liability with BPO (2)
Min Rental payments
BPO
Liability w/o BPO (3)
Min Rental Payments
Residual value guaranteed
Non Renewal Penalty
Capital Lease Sub Measure
Each Payment 2 Components (Principal & Interest)
Effective interest rate required
Portion of min lease payment in excess of interest reduces liability
Depreciation Leased asset
Same as owned/purch
- Criterion 1 (trans own) - Econ Life
- Criterion 2 (BPO) - Econ Life
- Criterion 3 (75%) - Lease term
- Criterion 4 (90%) - Lease term
Disclosure
Future min lease payments must be disclosed in aggregate 5 years
Lessor Capitalization
1 of 4 Criterion and
1) Collectibility of remaining payment predictible and
2) No material uncertainty exist regarding unreimbursible cost to be incurred by lessor
Direct Financing Lease
No manufacturing profit
Sales-Type Lease
Lessor recognizes manufacture/dealer profit
- FV differs from carrying amount/cost
Sale-Leaseback
If lease qualifies as capital, gain/loss generally deferred and amortized by seller/lessee
1) Gain Deferred may recognized as asset valuation
2) Loss occurs when carry amount > FV (recognize immediately)
3) IF carry amount > SP but FV > carry amount loss deferred and amortized as pp rent
If lease op lease - deferred into gross rent payments
Sale-Leaseback Exception - Retain < 10%
Based on ratio of PV lease payments to FV of lease prop
No gain/loss defer recognize immediately in separate transaction
Sale-Leaseback Exception - Between 10% and 90% of FV of prop - Op Lease
Gain Recognized as difference between Total Gain - PV of min lease payments
Sale-Leaseback Exception - Between 10% and 90% of FV of prop - Capital Lease
Gain recognized up to the recorded amount of leased asset (PV of min lease payments or FV) must be deferred.
Total gain recognized immediately Total gain - Recorded amount of leased asset
Contingencies - Probable
Must be accrued when probable and reasonable estimate
Contingencies - Reasonably Possible
Disclosed w/ a range
Contingencies - Remote
Not disclosed
Contingencies - Gain
Only recognized when realizable but should be dislcosed
Sales-Leaseback qualified deferred gain reported as
Asset Valuation allownance
The excess fair value of leased property at inception of lease over the carrying amount should be classified by lessor as
Manufacturer’s/Dealers’ profit from from sales-type lease
Finding Annual Payment DF Lease
FV of Asset/PV factor
Interest on DF lease
Sum of Annual Payment - FV of Assets
Sales-type lease
Unearned income is amortized to income over the lease term using the effective interest rate method, which produces a constant periodic rate of return on net investment
