F5 Leases

Question 1

Bargain Purchase option

Answer 1

included as part of minimum lease payments to be discounted

Question 2

In a sale-leaseback transaction, a gain resulting from the sale should be deferred at the time of the sale-leaseback and subsequently amortized under U.S. GAAP when:

Answer 2

the seller-lessee retains the right to substantially all of the remaining use of the property (as in a capital lease).

Question 3

at inception of capital (finance) lease the guaranteed residual value should be

Answer 3

included as part of min lease payments at PV

Question 4

real estate taxes related to capital leases

Answer 4

should be expensed when paid - they are not included in the pv of min lease payments

Question 5

first month rent and last months rent

Answer 5

Rent expense should include the first month’s rent and an allocated portion of the bonus.

The last month’s rent should be shown as a prepaid expense.

Question 6

Leasehold improvements are amortized…

Answer 6

over the LESSER of the remaining life of the lease, the life of the improvement.

Question 7

PV of min lease payments

Answer 7

required payments = 100,000 x pv of annuity DUE (if beginning)

+ Guaranteed residual = 20,000 x (pv of 1 @ 6%)

+ BPO

Question 8

Direct financing PV

Answer 8

PV = annual rents x annuity due PV Factor

323,400 = annual rents x 4.312

Question 9

Profit on Sales type lease

Answer 9

excess of the selling price (present value) over cost is profit (list selling price is distractor)

PVMLP
- cost
= profit

Question 10

Depreciation expense for capital lease

Answer 10

Cost – includes BPO
- SV
= depreciation base / years life

Question 11

Profit on sales type (finance) lease recognized by the dealer (lessor)

Answer 11

difference between the FV of the leased asset and its cost

Selling Price 77,000
- cost 60,000
= 17,000 profit recognized on sale

Question 12

Components of lease receivable for a lessor involved in direct financing lease?

Answer 12

min lease payments

+ residual value

Question 13

Sales type (finance) lease depreciation for lessee

Answer 13

Lessee records lease as an asset and liability for the lesser of FMV at inception or cost (pvmlp)

Lease should be depreciated (amortized) over the LEASE TERM if no ownership or no BPO

Question 14

Sale Leaseback IFRS

Answer 14

Finance lease - profit deferred and amortized

Operating - gain recognized based on leased assets CV, FV and SP

GR = SP @ FV – profit recognized immediately

Question 15

Sale Leaseback less than 10%

Answer 15

Minor

PV of rental payments is 10% or less of FV or if leaseback period is 10% or less of remaining life

G/L recognized immediately

Question 16

Sale leaseback between 90-10%

Answer 16

portion of gain is deferred for amount up to the PV of min lease payments and excess is recognized immediately

Question 17

Sale Leaseback substantially all rights – greater than 90%

Answer 17

Major

if PV of rent payments is equal or greater to 90% of the FV

Defer ALL gain, amortize over leaseback period

Question 18

Leasehold improvements

Answer 18

amortized over lesser of remaining life of lease or life of improvement