LEASE LIABILITY Flashcards
Costs of maintaining the asset
Executory Costs
What makes a lease a finance lease in the POV of the lessor?
TOMSS
What makes a lease an operating lease in the POV of the lessor?
If it is not TOMSS
What is included in the Lease Payments of a Lease Liability?
PV of Lease Payments:
1. Fixed Lease Payment
2. Variable Lease Payment
3. Option to Purchase
4. Residual Value Guarantee
5. Termination penalties
How to solve for a ROU Asset in the Seller-Lessee’s books?
Costs = Carrying Amount x (Right Retained/Fair Value)
Lease Accounting in the Lessee’s perspective is generally classified as what type of lease?
Finance Lease
What are the two scenarios that a lessee can record a lease as an operating lease?
- Short Term Lease
- Low Value Lease
How do you recognize lease payments in an operating lease under the lessee’s perspective?
Expensed over the SL basis or Lease Term (SL if silent)
or another systematic basis
What are the two things being recognized in the finance lease under the lessee’s perspective?
- ROUA
- Lease Liability
The asset that represents the right of a lessee to use an underlying asset over the lease term.
Right of Use Asset
At what measurement should the right of use asset be measured at during the commencement of a lease liability?
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
What are Leasehold Improvements recognized as?
Part of PPE (not considered in either ROUA or Lease Liability)
How do you recognize Executory Costs?
Expense as incurred
Under the POV of the Lessee, how would you recognize a Refundable Security Deposit?
Receivable
When are the scenarios where the subsequent measurement of the ROUA is measured at fair value?
Two satisfied conditions:
1. It is an investment property
2. Investment properties uses at fair value
3. PPE’s are using the revaluation model
What is the subsequent measurement of the ROUA?
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 )
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
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
What is the initial measurement of a lease liability?
PV of Lease Payments
What is considered in the Lease Payments of the initial measurement of a Lease Liability?
- Fixed Lease Payments
- Variable Lease Payments
- Option Price
- Residual Value Guaranteed
- Termination Penalties
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?
Option Price
What rate is to be used in the PV of Lease Payments?
Order of priority:
1. Implicit Rate
2. Incremental Rate
How to solve for the subsequent measurement of a Lease Liability?
Amortized Cost or
CA, end = CA, beg + payment - Interest Expense
If there is a residual value, the ending carrying amount of the lease liability should be the __________.
Residual Value
If the residual value at the end of the UL is less than the fair value, is there are a loss or gain?
Neither loss nor gain
