LEASE ACCUNTING Flashcards
WHEN TO CONSIDER AMORTZATION OF ASSET ON ECONOMINC LIFE OR LEASE TERM OF ASSET
Economic Life: Use the economic life of the asset as the amortization period for a finance lease when:
There is a written purchase option that the lessee is reasonably certain to exercise.
The lease transfers ownership of the asset to the lessee by the end of the lease term.
Lease Term: Use the lease term as the amortization period for:
Operating leases: The ROU asset is amortized over the lease term.
Finance leases: When neither of the exceptions above for using economic life applies, the asset is amortized over the shorter of the lease term and the useful life.
when to consider fair estimated value at the end of life of its economincal life
when we are calculating amortization expense pls deduct it from lease value( total lease payment + written purchase option),
but when calculating initial lease liability only take into consideration only the written purchase option dont count for fair value at the end of life.
Which carrying value to take into consideration for interest exps
imum lease payments which can becalculated by lease installment x pv for installment. Pls note if it is paid semiannually interest rate would be half and period would be doubled
How to amortize asset ?
when there is a written purchase option or when the lessee takes ownership of the asset at the end of the lease term amortize over useful economic life.
when above criteria not met lease term
