F6M1 Flashcards
Lease
right to use real or personal property and lessee who agrees to pay consideration for this right over a specified period of time
To be a lease, what criteria must be met
- identifiable asset
2. right to control use of asset
To combine a contract, what requirements need to be met
One or more of the contracts is a lease
Contracts are entered into around the same time
parties are the same or related
Same commercial objectives
How to know if there is a separate leasing component
rights benefit lessee either stand-alone or together
They are NOT interdependent
What types of leases are for a lessee
operating or finance
What types of leases for a lessor
operating
finance (sales-type or direct financing)
OWNES makes what kind of lease
lessee - financing
lessor - sale-type
PC makes what kind of lease
lessee - operating
lessor - direct financing
If neither OWNES or only one of PC is met, what kind of lease
operating for both!
if it is short term, it is operating!
OWNES
ownership of asset written option to purchase net present value is greater than 90% of fair value Economic life is over 75% specialized asset
PC
present value of lease payments equal fair value
collectability of lease payments is probable
Lessor sales type lease
one of OWNES is met
lessor direct financing lease
both PC is met
Lessor operating lease
one or none of PC is met
Lessee financing lease
at least one of OWNES is met
Lessee operating lease
none of ownes is met
When do you recognize a lease
on commencement date
between the sign date and commencement date, just disclose
Treatment of options to extend or terminate lease
included if it is reasonably certain
What are included in lease payments
RECORD
required contractual fixed payments Exercise option reasonably assured Purchase price at end of lease Only indexed or rate variable payments Residual guarantees likely to be owed Termination of penalities reasonably assured
Items that Lessee have the option to include
NGO
Nonlease components
Guarantees of lessor debt by lessee
Other variable lease payments
What discount rate should you use with leases
1st the implicit rate
2 incremental borrowing rate (only if implicit is not available)
How are initial direct costs accounted for in leases
included in the valuation of a ROU asset
What are NOT included in direct costs for a lease
lease term negotiations, document preparation, and credit checks
Criteria for sales-leaseback transaction
exercise price is at FV
residual value guarantee
What happens if sale lease back criteria is NOT met
it is treated as a failed sale, financing lease, if none of OWNES is met
Lesse accounting for operating lease
no OWNES
interest expense - payment = reduction in liability
SHort term
may elect to not recognize the ROU asset
Sales-Type lease
OWNES, all risk/rewards, lessor will fully derecognize asset
Direct financing lease
include direct costs in price of the lease and credit cash
Operating lease
some risks and rewards, rental agreement, no OWNES, 1 or no PC, lessor keeps the asset on their book
Cash flow operating lease
lease, variable lease, ST lease interest
Cash flow investing
preparing lease for use
cash flow financing
prinipal
