LEASE LIABILITY

Question 1

Costs of maintaining the asset

Answer 1

Executory Costs

Question 2

What makes a lease a finance lease in the POV of the lessor?

Answer 2

TOMSS

Question 3

What makes a lease an operating lease in the POV of the lessor?

Answer 3

If it is not TOMSS

Question 4

What is included in the Lease Payments of a Lease Liability?

Answer 4

PV of Lease Payments:
1. Fixed Lease Payment
2. Variable Lease Payment
3. Option to Purchase
4. Residual Value Guarantee
5. Termination penalties

Question 5

How to solve for a ROU Asset in the Seller-Lessee’s books?

Answer 5

Costs = Carrying Amount x (Right Retained/Fair Value)

Question 6

Lease Accounting in the Lessee’s perspective is generally classified as what type of lease?

Answer 6

Finance Lease

Question 7

What are the two scenarios that a lessee can record a lease as an operating lease?

Answer 7

1. Short Term Lease
2. Low Value Lease

Question 8

How do you recognize lease payments in an operating lease under the lessee’s perspective?

Answer 8

Expensed over the SL basis or Lease Term (SL if silent)

or another systematic basis

Question 9

What are the two things being recognized in the finance lease under the lessee’s perspective?

Answer 9

1. ROUA
2. Lease Liability

Question 10

The asset that represents the right of a lessee to use an underlying asset over the lease term.

Answer 10

Right of Use Asset

Question 11

At what measurement should the right of use asset be measured at during the commencement of a lease liability?

Answer 11

Cost:
1. Initial Measurement of Lease Liability
2. Initial Direct Costs (paid by lessee)
3. Lease Bonus
4. Less: Lease Incentives
5. ARO – Dismantling, Removal Cost

Question 12

What are Leasehold Improvements recognized as?

Answer 12

Part of PPE (not considered in either ROUA or Lease Liability)

Question 13

How do you recognize Executory Costs?

Answer 13

Expense as incurred

Question 14

Under the POV of the Lessee, how would you recognize a Refundable Security Deposit?

Answer 14

Receivable

Question 15

When are the scenarios where the subsequent measurement of the ROUA is measured at fair value?

Answer 15

Two satisfied conditions:
1. It is an investment property
2. Investment properties uses at fair value
3. PPE’s are using the revaluation model

Question 16

What is the subsequent measurement of the ROUA?

Answer 16

Cost
Less: Acc Depreciation
Less: Acc Imp Loss
———————————
Carrying Amount

(Note: Fair Value is the subsequent measurement if the ROUA is an investment property and the investment property in the lessee’s books are classified into the fair value model. If PPE’s are using the revaluation model, then ROU Assets can also be )

Question 17

In depreciating a ROU Asset, what are the considerations for the Residual Value and the Useful Life in this formula:

Cost - Residual Value
Divide: UL

Answer 17

If TO:
- residual value at the end of the life
- Useful Life

If not TO:
- Residual Value Guaranteed or Purchase Option
- Shorter between UL and LT

Question 18

What is the initial measurement of a lease liability?

Answer 18

PV of Lease Payments

Question 19

What is considered in the Lease Payments of the initial measurement of a Lease Liability?

Answer 19

1. Fixed Lease Payments
2. Variable Lease Payments
3. Option Price
4. Residual Value Guaranteed
5. Termination Penalties

Question 20

If both option price and residual value guaranteed is both given at the commencement of a lease, what is to be used in the PV of Lease Payments?

Answer 20

Option Price

Question 21

What rate is to be used in the PV of Lease Payments?

Answer 21

Order of priority:
1. Implicit Rate
2. Incremental Rate

Question 22

How to solve for the subsequent measurement of a Lease Liability?

Answer 22

Amortized Cost or

CA, end = CA, beg + payment - Interest Expense

Question 23

If there is a residual value, the ending carrying amount of the lease liability should be the __________.

Answer 23

Residual Value

Question 24

If the residual value at the end of the UL is less than the fair value, is there are a loss or gain?

Answer 24

Neither loss nor gain

Question 25

If the residual value at the end of the UL is higher than the FV, is there a loss or a gain?

Answer 25

Loss

Question 26

How do you find the cost of the acquired asset, when you purchase a lease asset as a lessor?

Answer 26

Carrying amount of ROUA
Cash Payment
Less: CA of the Lease Liability
——————————————–
Costs of the Asset

Question 26

All the other components of finding the ROUA are __________ to find the annual expense.

Answer 26

Amortized