FAR 5 - Accounting for Leases - Capital (Finance) Lease - Lessor & Sale-Leaseback Flashcards
What are two profits for Lessor for Capital Lease?
1) Gain on sale
2) Interest income
What is cost of goods sold under capital lease for Lessor?
Cost of asset - PV Unguaranted residual value (the hunk of junk you are getting back = Cost of Goods Sold
What are is profit for Lessor for Operating Lease?
1) Interest Income
Is there a COGS or sale in operating lease?
No sale and no COGS.
What are the amount of deferred gain rules in Sale-Leaseback U.S. GAAP?
In sale-leaseback the
1) If present value of the payments are equal or greater than 90% of the fair value - DEFER ALL GAIN ( FV -CV IS DEFERRED GAIN)
2) If present value of the payments are 10%-90% than defer gain up to the profit. The gain is (FV - CV = TOTAL PROFIT - PV of lease payments = Proft)
3) If present value of the payments are less than RECOGNIZE ALL GAINS (FV -CV is gain)
When do you recognize losses in Sale-Leaseback?
1) Real Economic Loss - recognized immediately
2) Artificial Loss - When sale price is below fair value, the loss is deferred and amortized over the leaseback period.
What are the amount of deferred gain rules in Sale-Leaseback IFRS?
1) In a Capital Leaseback (Finance Leaseback) all GAINS ARE DEFERRED AND AMORTIZED over the LEASE TERM.
2) In an Operating Leaseback:
- If the sale price is equal to fair value, any profit or loss is recognized immediately.
- If the sale price is above fair value, any profit should be deferred and amortized
- If the sale price is below fair value, any profit or loss is recognized immediately.
How to determine if sublease is an operating lease or capital lease?
1) Sublease is an operating lease if the original lease was an operating lease.
2) Sublease is an operating lease if ninety percent FV or Seventy five percent of life rules apply to sublessee.
3) Sublease is a capital lease if ownership transfer or written bargain purchase option apply to sublessee.
