FAR 5 Flashcards
What is the normal present value formula?
Present value = future amount x PV factor
Present value is the investment
How should leasehold improvements be depreciated?
Over the lesser of their lease life and asset improvement life.
PV of lease payment / lease term
When do you recognize a gain resulting from the sale in a sales- leaseback?
a gain resulting from the sales leaseback should be deferred when the seller-lessee retains the rights to substantially all of the remaining use of the property
When does a lessor recognize in income a nonrefundable lease bonus paid?
recognized over the life of the lease
How do you handle the bonus to obtain the lease?
It should be amortized over the life of the lease and added into rent expense
How to handle a lease payment that begins immediately?
it would be classified as an “annuity due”
How to determine if something is a capital lease?
OWNS: lease transfers ownership, the lease contains a bargain purchase option, the PV at the beg. of the lease term of the minimum lease payments equals or exceeds 90% of FV of leased property, and lease term is 75% or more of estimated economic life.
How do you treat initial direct cost under IFRS?
it must be added to the finance lease asset at lease inception,
DR: Finance lease asset
CR: Finance lease obligation
CR: Cash (initial direct cost)
Under IFRS when should a sale be deferred in a sales leasback?
if the seller-lessee accounts for the lease as a finance lease or the lease is classified as an operating lease and the sales price is above fair value.
What are the components of the lease receivables for a lessor involved in a direct financing lease?
the lessor recording a lease receivable should include the minimum payment plus any residual value.
How is COGS treated in a sales type lease?
COGS is equal to the historical cost of the asset - PV of non-guaranteed residual value discounted over the life of the lease.
COGS will be less than historical cost
A lease is classified as a capital lease, over what period should the lessee amortize the leased property?
it should be amortized over the leased property economic life of the asset when there is a bargain purchase option.
What are the three criteria for a lessor?
LUC
- Lessee owns the leased property
- uncertainties do not exist
- conductibility of the lease payment is reasonable predictable
The market price of a bond issued at a premium is equal to the Present Value of its principal amount
and the Present value of all future interest payments at the market (effective) interest rate
How many moths of interest expense is calculated from Bonds issued at June 1, and year end at December 31?
Seven months
